Annual Report 2011 Prologue

Annual report 2011 Prologue

Vestas’ four most important stakeholders are its customers, shareholders, employees and the surrounding society. To be able to generate value for all stakeholders in the long run, Vestas must maintain close stakeholder relations and consistently become a more efficient supplier of wind power solutions measured in terms of financial performance, tonnes and megawatt hours.

This annual report incorporates Vestas’ financial reporting and the measures it has taken to reduce consumption of Earth’s scarce resources and the company’s environmental footprint. Proper working conditions and generally accepted business ethics are two among a number of priority areas which in combination should demonstrate correct Vestas behaviour. Generally, the annual report aims to provide an insight into the values that Vestas generates for its stakeholders.

Combined with additional information about Vestas’ sustainability initiatives at vestas.com, this annual report constitutes Vestas’ “Com- munication on Progress” (COP) under the UN Global Compact. As a result of its endorsement of the UN Global Compact, Vestas has opted to apply the option stipulated in section 99a of the Danish Financial Statements Act concerning the duty of large enterprises to prepare a corporate social responsibility report by referring to the COP report. Vestas’ reporting process meets the international guidelines from the Global Reporting Initiative, GRI G3.0. Annual report 2011

004 A tough year – for the global economy, the climate and for Vestas 006 Highlights for the Group 008 Overview 013 Management report 035 Corporate governance 053 Consolidated accounts 111 Annual accounts for Vestas Wind Systems A/S 122 GRI index 123 Information about the company

This annual report is available on vestas.com/investor in Danish and English. In case of doubt, the Danish version shall apply. A tough year – for the global economy, the climate and for Vestas

2011 was a tough year for Vestas. Not only did Vestas realise its first The new Vestas loss since 2005, but we also had to abandon our Triple15 targets, our On 12 January 2012, Vestas announced a new organisation, which is share price dropped by 65 per cent and we had to prepare for another designed to enable Vestas to better retain and exploit its global foot- round of lay-offs that will affect more than 2,000 skilled and dedi- print, increase customer proximity and reduce costs. cated employees. The Vestas Government, which previously consisted of 16 persons, In particular, the latter part of the year, which led to two profit warn- has now been abolished. Instead, the Executive Management has ings due to commissioning problems at the generator factory in been enlarged to six members to allow greater focus on all key parts Travemünde, Germany, postponement of project deliveries corre- of the value chain and to drive a stronger performance management. sponding to around EUR 1.2bn and higher industrialisation costs for The new organisation will result in shorter chains of command and a the V112-3.0 MW turbine and the GridStreamer™ technology, among clearer segregation of responsibilities. other things, was disappointing. The new Vestas also allows for an expansion of the service business. 2011 was also a tough year for the climate. According to the Interna- Maintenance and optimisation of customers’ wind farms have devel- tional Energy Agency (IEA), the opportunity to cap global warming at oped into a high-technology product with a great potential. Going two degrees Celsius will soon pass. Should that happen, the world can forward, the service organisation is expected to attract a larger share expect an average temperature increase of four degrees Celsius within of total investments, enabling an even faster introduction of new ser- this century. This would lead to dramatic climate change in the form of vices and solutions to the benefit of customers and Vestas alike. By droughts, storms and flooding. expanding the service business, which is characterised by stable and evenly distributed revenue over the course of the calendar year, Vestas On the other hand, we were pleased to record a drop in the incidence believes it will become less exposed to the financial and seasonal fluc- of industrial injuries to 3.2 per one million working hours, which made tuations typical of the wind turbine industry. 2011 the safest year ever for Vestas. Another focus area for the new organisation is offshore wind power. Furthermore, Vestas will reach an important milestone when the On 30 March 2011, Vestas announced the specifications of its new company will install its MW number 50,000 during the first quarter of V164-7.0 MW offshore turbine, which will become the biggest devel- 2012. The milestone is expected to be reached in connection with the opment project in our company’s history. The V164-7.0 MW turbine handing over of six V112-3.0 MW turbines to E.ON Sverige AB’s Örken will make offshore wind power much cheaper than it is today, but will project in Sweden, underlining the fact that the V112-3.0 MW turbine also create new requirements for Vestas, which, among other things, is off to a very good start. The combined V112 order intake of more is open to entering into strategic partnerships on developing next- than 2 GW bear witness to customer confidence in Vestas. generation offshore wind turbines.

004 Vestas annual report 2011 · A tough year – for the global economy, the climate and for Vestas Changed principles for announcing outlook En route to the next 50,000 MW At Vestas, we believe in the value of open communications with the eq- Following a 2011 that did not turn out as expected, we are now pre- uity market and other stakeholders. Accordingly, the company has his- paring for a challenging 2012 and a 2013, which may prove even torically shared a large number of targets with customers, the financial more challenging. markets, suppliers and employees. However, there are also bright spots. In spite of fierce competition Based on, among other things, input from a number of the company’s from some of the world’s largest industrial conglomerates, Vestas has large shareholders, Vestas has decided to reduce the number of out- retained its market leadership position and expects to gain market look parameters it provides to the public. Furthermore, Vestas has shares. These expectations build on the benefits we enjoy from having decided to introduce guidance ranges for earnings (EBIT), revenue and globalised our production set-up and from the massive investment we free cash flow to take into account the heavy fluctuations characteris- have made in research and development over the past seven years. In ing these items depending on timing of order intake, production, ship- addition, Vestas has improved turbine efficiency and reliability. The ments and final deliveries to customers. wind power plants covered by our extended service responsibility currently harvest an average of 98 per cent of the winds that pass the Political winds of change turbine. No other company in the wind turbine industry reports similar In many countries, the political attention to renewable energy is over- figures. shadowed by severe economic challenges. The USA has yet to draw up a national energy plan with ambitious climate targets. The lack of such It took Vestas 33 years to install the first 50,000 MW of turbines. We a plan, combined with low gas prices makes for difficult market condi- will reach the next 50,000 MW considerably faster. tions. Consequently, Vestas is preparing for a significant slowdown in the US market in case the Production Tax Credit (PTC) scheme is not extended beyond 2012. If the PTC is not extended, this could result in Bent Erik Carlsen Ditlev Engel the lay-off of approx 1,600 employees at the US factories. Chairman President and CEO

Even though renewable energy may seem to be losing momentum, the EU is sticking to its green targets. In fact, Germany has decided to shut down all of its nuclear power plants over the next ten years. Outside the EU, Australia, the world’s largest coal exporter, has introduced a fixed price on CO2, and for the second time green growth was on the G20 agenda at the summit in Cannes, France, in 2011. Overall, renewable energy thus continues to gain ground, not least because wind power, globally, is becoming increasingly competitive relative to fossil fuels.

A tough year – for the global economy, the climate and for Vestas · Vestas annual report 2011 005 Highlights for the Group

mEUR 2011 2010 20091) 20081) 20071) Highlights Income statement Revenue 5,836 6,920 5,079 5,904 3,828 Gross profit 725 1,175 836 1,125 584 Profit before financial income and expenses, depreciation and amortisation (EBITDA) before special items 305 747 469 749 338 Operating profit/(loss) (EBIT) before special items (38) 468 251 614 202 Profit before financial income and expenses, depreciation and amortisation (EBITDA) 305 684 469 749 338 Operating profit/(loss) (EBIT) (60) 310 251 614 202 Profit/(loss) of financial items (93) (72) (48) 46 0 Profit/(loss) before tax (153) 238 204 660 202 Profit/(loss) for the year (166) 156 125 470 104

Balance sheet Balance sheet total 7,689 7,066 7,959 6,327 5,298 Equity 2,576 2,754 2,542 1,587 1,188 Provisions 329 370 534 393 399 Average interest-bearing position (net) (990) (593) (55) 395 179 Net working capital (71) 672 317 (73) (411) Investments in property, plant and equipment 406 458 606 509 265

Cash flow statement Cash flow from operating activities 840 56 (34) 277 701 Cash flow from investing activities (761) (789) (808) (680) (317) Free cash flow 79 (733) (842) (403) 384 Cash flow from financing activities (13) 568 1,075 (91) (54) Change in cash at bank and in hand less current portion of bank debt 66 (165) 233 (494) 330

Ratios2) Financial ratios Gross margin (%) 12.4 17.0 16.5 19.1 15.3 EBITDA margin (%) before special items 5.2 10.8 9.2 12.7 8.8 EBIT margin (%) before special items (0.7) 6.8 4.9 10.4 5.3 EBITDA margin (%) 5.2 9.9 9.2 12.7 8.8 EBIT margin (%) (1.0) 4.5 4.9 10.4 5.3 Return on invested capital (ROIC) (%) before special items (1.3) 10.8 9.5 43.4 21.3 Solvency ratio (%) 33.5 39.0 31.9 25.1 22.4 Net interest-bearing debt/EBITDA before special items 1.8 0.8 (0.3) (0.1) (1.8) Return on equity (%) (6.2) 5.9 6.1 33.9 9.0 Gearing (%) 35.7 33.2 13.8 7.8 12.6

Share ratios Earnings per share (EUR) (0.8) 0.8 0.6 2.5 0.6 Book value per share (EUR) 12.6 13.5 12.5 8.6 6.4 Price / book value (EUR) 0.7 1.7 3.4 4.7 11.5 P / E-value (EUR) (10.3) 30.8 71.0 16.3 123.3 Cash flow from operating activities per share (EUR) 4.1 0.3 (0.2) 1.5 3.8 Dividend per share (EUR) 0.0 0.0 0.0 0.0 0.0 Payout ratio (%) 0.0 0.0 0.0 0.0 0.0 Share price 31 December (EUR) 8.3 23.6 42.6 40.7 74.0 Average number of shares 203,704,103 203,704,103 197,723,281 185,204,103 185,204,103 Number of shares at the end of the year 203,704,103 203,704,103 203,704,103 185,204,103 185,204,103

1) The comparative figures have been adjusted in accordance with the new accounting policies. 2) The ratios have been calculated in accordance with the guidelines from ”Den Danske Finansanalytikerforening” (The Danish Society of Financial Analysts) (Recommendations and Financial ratios 2010), ref. note 1 to the consolidated accounts.

006 Vestas annual report 2011 · Highlights for the Group 2011 2010 2009 2008 2007 Non-financial Key figures1) Occupational health & safety Industrial injuries (number) 132 201 306 534 534 – of which fatal industrial injuries (number) 1 0 0 0 0

Products MW produced and shipped 5,054 4,057 6,131 6,160 4,974 Number of turbines produced and shipped 2,571 2,025 3,320 3,250 2,752

Utilisation of resources Consumption of metals (tonnes) 211,754 171,024 202,624 187,478 170,505 Consumption of other raw materials, etc. (tonnes) 105,031 107,485 126,600 129,207 111,541 Consumption of energy (MWh) 585,560 578,063 537,165 458,296 372,037 – of which renewable energy (MWh) 222,694 241,930 263,611 172,800 139,983 – of which renewable electricity (MWh) 207,534 209,351 238,462 167,311 138,035 Consumption of fresh water (m3) 562,308 598,258 521,005 474,958 554,516

Waste disposal Volume of waste (tonnes) 89,051 88,663 97,471 96,632 89,643 - of which collected for recycling (tonnes) 48,178 35,410 34,303 30,254 28,422

Emissions

Direct emission of CO2 (tonnes) 58,444 56,547 50,532 41,832 32,798

Local community Environmental accidents (number) 0 0 10 16 15 Breaches of internal inspection conditions (number) 3 3 3 5 5

Employees Average number of employees 22,926 22,216 20,832 17,924 13,820 Number of employees at the end of the year 22,721 23,252 20,730 20,829 15,305

Non-financial Indicators1) Occupational health & safety Incidence of industrial injuries per one million working hours 3.2 5.0 8.1 15.6 20.8 Absence due to illness among hourly-paid employees (%) 2.3 2.6 2.8 3.3 3.6 Absence due to illness among salaried employees (%) 1.3 1.3 1.3 1.1 1.4

Products

CO2 savings over the life time on the MW produced and shipped

(million tonnes of CO2) 133 108 163 164 143

Utilisation of resources Renewable energy (%) 38 42 49 38 37 Renewable electricity for own activities (%) 68 74 85 68 66

Employees Women at management level (%) 18 19 19 17 N/C2 ) Non-Danes at management level (%) 53 49 46 42 N/C

Management system OHSAS 18001 – occupational health & safety (%) 973 ) 98 97 98 84 ISO 14001 – environment (%) 963 ) 98 97 100 80 ISO 9001 – quality (%) 94 98 98 98 98

1) Accounting policies for non-financial highlights for the Group, see page 32. 2) Not calculated (N/C) for the year. 3) The technology centres in Singapore and the USA as well as the sales and service organisations in Canada and Vestas Offshore, UK, have not yet been certified against OHSAS 18001 and ISO 14001. The production facilities in Xuzhou, China, have not yet been certified against ISO 14001. Vestas’ aim is for all new units to be certified within six months after commencing operations.

Highlights for the Group · Vestas annual report 2011 007 Overview

Full year 2011 than the average for the past ten years, caused a postponement of 2011 was a very challenging year for the wind industry. The same delivery and, by extension, recognition of a number of projects. applies to Vestas which had to issue two profit warnings and abandon its Triple15 targets. Vestas recorded revenue of EUR 5.8bn and an Revenue in the service business rose by 13 per cent to EUR 705m. EBIT margin before special items of (0.7) per cent in 2011, slightly be- The service business EBIT margin stood at 16 per cent. low the preliminary financial figures for 2011 announced on 3 January 2012 due to later-than-expected deliveries. The gross profit amounted to EUR 725m, corresponding to a gross margin of 12.4 per cent. In 2010, the gross profit and gross margin The results and revenue for the year are, however, substantially lower amounted to EUR 1,175m and 17.0 per cent, respectively. The lower than the original expectations of an EBIT margin of 7 per cent and result was due to lower-than-expected deliveries and unforeseen high revenue of EUR 7bn which are disappointing. It should be emphasised, costs, primarily in connection with industrialisation of the V112-3.0 however, that the projects in question have not been cancelled but MW turbine and the GridStreamerTM technology for the 2 MW platform. postponed and that they are expected to be handed over and recognised as income in 2012. The operating loss, EBIT, before special items was EUR (38)m, corresponding to an EBIT margin of (0.7) per cent, as compared to the On the other hand, the intake of firm and unconditional orders of original forecast of an EBIT margin of 7 per cent. 7,397 MW with a value of EUR 7.3bn, was in line with expectations. In terms of MW, Europe and Africa accounted for 50 per cent, the Net working capital amounted to EUR (71)m, an improvement of EUR Americas accounted for 34 per cent, and Asia Pacific accounted for 743m since 2010. The improvement was attributable especially to 16 per cent of the order backlog. The backlog of orders at the end of the reduction of component inventories following a successful make- 2011 was 9,552 MW corresponding to EUR 9.6bn, which is the high- to-order implementation, higher pre-payments and trade payables. est level ever recorded. The free cash flow rose by EUR 812m to EUR 79m primarily as a In 2011, Vestas produced and shipped 2,571 wind turbines with an result of the net working capital improvement. Vestas thus met the aggregate capacity of 5,054 MW, against 2,025 wind turbines and forecast to generate a positive free cash flow. 4,057 MW in 2010. The Group achieved a return on invested capital before special items Vestas generated revenue of EUR 5.8bn in 2011; EUR 1.2bn lower of (1.3) per cent, against 10.8 per cent in 2010. Other than the disap- than the original forecast and 16 per cent lower than in 2010. Com- pointing full-year financial performance, the decline was due to recent missioning problems at the new generator factory in Travemünde, Ger- years’ large-scale investments in new facilities and technology, not many, and poor weather towards the end of the year; for instance, in fully utilised in 2011. Germany, where wind speed in December was 30 to 45 per cent higher

Revenue and EBIT (mEUR) Cash flow from operations and investments (mEUR)

8,000 1,000 840 6,920 7,000 750 701

5,904 6,000 5,836 500 5,079 5,000 277 250

4,000 3,828 56 0 (34) 3,000 -250 2,000 (317)

-500 1,000 614 468 202 251 -750 (680) 0 (761) (38) (808) (789)

-1,000 -1,000 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Revenue EBIT Cash ﬂow from operations Investments

008 Vestas annual report 2011 · Overview Non-financial issues 1,626 MW in the fourth quarter of 2010. Fourth-quarter shipments Personal safety is always given top priority at Vestas because its were among other things adversely affected by commissioning prob- employees are entitled to it and its customers request it. Through lems at the new generator factory in Travemünde, Germany. During increased focus, intensive training and the dedicated efforts of its the quarter, a total of 1,956 MW was delivered to Vestas’ customers, employees, Vestas has managed to reduce the number of accidents against 2,557 MW in the fourth quarter of 2010. year after year. Continuing its decline, the incidence of industrial injuries was 3.2 per one million working hours in 2011, which was much Fourth-quarter revenue amounted to EUR 2,038m in 2011, a decline below the 5.0 target and a great improvement on 2007, when the of 35 per cent from EUR 3,123m in the fourth quarter of 2010. incidence rate was 20.8. Europe and Africa accounted for 62 per cent of revenue, the Americas for 30 per cent and Asia Pacific for 8 per cent of revenue. The target is 0.5 industrial injuries per one million working hours in 2015, the ultimate goal being to avoid accidents altogether. The gross profit was EUR 267m, or 13.1 per cent, against EUR 613m and 19.6 per cent, respectively, in the fourth quarter of 2010. Vestas has defined a goal that all electricity must come from renewable energy sources, subject to availability. For 2011, the goal was EBIT before special items of EUR 22m, relating, among other things, to for 40 per cent of Vestas’ energy consumption to be green, while the the tower factory in Varde, Denmark, fell to EUR 46m from EUR 416m share of renewable electricity should be at least 95 per cent. The goal in the fourth quarter of 2010. The EBIT margin before special items was not reached because it was not possible to buy renewable elec- fell to 2.3 per cent from 13.3 per cent in the fourth quarter of 2010. tricity in sufficient volumes in China and in parts of the USA and India in 2011. Vestas therefore invested in wind power plants in Eastern Warranty provisions in the quarter amounted to EUR 58m, equal to Europe, some of which, however, are not expected to be fully commis- 2.8 per cent of revenue. In the fourth quarter of 2011, Vestas con- sioned until in 2012. sumed warranty provisions totalling EUR 43m. The improved turbine performance is also reflected in the Lost Production Factor (LPF), Vestas’ share of renewable energy dropped to 38 per cent in 2011 which was reduced to just 2 per cent in the autumn of 2011. The LPF from 42 per cent in 2010, and renewable electricity dropped to 68 indicates the share of the wind not harvested by the turbines. per cent in 2011 from 74 per cent in 2010. Cash flow from operating activities improved by EUR 173m to EUR Fourth quarter 2011 574m. Investments in the quarter amounted to EUR 277m, which was Vestas’ fourth-quarter order intake was 3,186 MW with a total value lower than planned due to a general reduction in the activities in the of EUR 3.3bn. fourth quarter. The free cash flow rose to EUR 297m from EUR 145m in the fourth quarter of 2010, primarily as a result of the strong net Vestas produced and shipped 721 wind turbines with an aggregate working capital improvement in the quarter. capacity of 1,478 MW in the quarter, against 845 wind turbines and

Order intake and shipments (MW) Incidence of industrial injuries (per one million working hours)

9,000 8,673 25

8,000 7,397 20.8 20 7,000

6,019 6,160 6,131 6,000 5,613 15.6

4,974 5,054 15 5,000

4,057 4,000 10 3,072 8.1 3,000

2,000 5.0 5 3.2 1,000

0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Order intake Shipments

Overview · Vestas annual report 2011 009 Outlook Total investments are expected to be EUR 550m, of which invest- Based on, among other things, input from a number of the company’s ments in intangible assets are expected to amount to EUR 350m, large shareholders, Vestas has decided to reduce the number of out- reflecting higher investments in the development of the V164- look parameters it provides to the public. Furthermore, Vestas has 7.0 MW offshore turbine. Total research and development expenditure decided to introduce guidance ranges for earnings (EBIT), revenue and is expected to amount to EUR 450m in 2012. the free cash flow to take into account the heavy fluctuations charac- terising these items depending on timing of order intake, production, Special items in 2012 relative to lay-off of approx 2,335 employees, shipments and final deliveries to the customers. which was announced on 12 January 2012, are expected to amount to approx EUR 50m with full cash effect. Vestas expects to reduce For 2012, Vestas expects to achieve an EBIT margin of between fixed costs by more than EUR 150m with full effect as from the end of 0-4 per cent and revenue of EUR 6,500-8,000m, including service 2012. revenue, which is expected to rise to approx EUR 850m with an EBIT margin of around 14 per cent. The free cash flow is expected to be positive in 2012.

The EBIT margin will be adversely affected primarily by too high pro- Vestas is aiming to reduce the incidence of industrial injuries to no duction costs for the V112-3.0 MW turbine and the GridStreamer™ more than 3.0 industrial injuries per one million working hours. technology, which will be reduced in the course of the year and by an expected increase in depreciation and amortisation charges of approx In the medium term, Vestas expects to achieve a high single-digit EBIT EUR 100m. margin, subject to a normalised US market.

Total warranty and product provisions are expected to account for less Annual General Meeting 2012 than 3 per cent of the expected revenue for the year. Vestas Wind Systems A/S’ Annual General Meeting will be held on 29 March 2012 at 2 p.m. at the Concert Hall (Musikhuset) in Aarhus, Shipments which are expected to increase to approx 7 GW with the Denmark. The convening will be disclosed on 1 March 2012. present production plans will peak in the middle of the year, while deliveries may fluctuate heavily over the quarters. It should be em- Distribution of dividend will always take place in due consideration phasised that Vestas’ accounting policies only allow it to recognise of the Group’s growth plans and liquidity requirements. The Board of supply-only and supply-and-installation projects as income when the Directors recommends to the company’s Annual General Meeting that risk has finally passed to the customer, irrespective of whether Vestas no dividend be paid for 2011. has already produced, shipped and installed the turbines. Disruptions in production and challenges in relation to wind turbine installation, for example bad weather, lack of grid connections and similar matters may thus cause delays that could affect Vestas’ financial results for 2012.

Customer loyalty index Outlook for 2012 (mEUR)

69 70 Grafstørrelse:Revenue 6,500-8,000 64 64 Bredde 79,5- of which mm service revenue approx 850 Højde 68EBIT mm margin (%) 0-4 60 EBIT margin, service (%) approx 14 Bredde kan forøges efter behov så 52 det passerInvestments, i illustrationsfeltet property, plant and equipment 200 50 46 Investments, intangible assets 350 Husk at indsætteFree cash tusindtalsepera flow - > 0 tor manuelt efter Warranty provisions (%) < 3 40 indtastning/ændring af talgrund- lag. Incidence of industrial injuries (per one million working hours) ≤ 3.0 30 Husk at sætte nederste legend- stregtykkelse til 100% sort 0,3 pt.

0 2007 2008 2009 2010 2011

010 Vestas annual report 2011 · Overview MW delivered onshore and offshore1) Accumulated Europe and Africa Germany 7,795 Spain 3,749 Denmark 2,694 Italy 2,664 United Kingdom 1,781 Netherlands 1,548 Sweden 1,427 France 1,392 Greece 1,044 Portugal 664 Ireland 586 Turkey 556 Poland 495 Romania 488 Austria 433 Bulgaria 303 Belgium 295 Hungary 105 Cyprus 82 Egypt 79 Czech Republic 68 Marocco 50 Croatia 48 Finland 27 Others 110 Wind turbines delivered1) Total 28,483 Quantity Total MW Americas Turbine type USA 9,669 Others 29,832 19,354 Canada 1,875 V52-850 kW 3,936 3,350 Brazil 204 V60-850 kW 116 99 Chile 117 V80-1.8 MW 1,016 1,829 Mexico 103 V80-2.0 MW 3,168 6,336 Argentina 87 V90-1.8 MW 1,175 2,115 Costa Rica 51 V90-2.0 MW 3,983 7,936 Jamaica 39 V90-3.0 MW 2,485 7,455 Others 92 V100-1.8 MW 369 669 Total 12,237 V112-3.0 MW 63 189

Total 46,143 49,332 Asia Pacific China 3,465 India 2,711 MW delivered offshore1) Australia 1,261 Accumulated Japan 510 United Kingdom 784 New Zealand 346 Netherlands 247 South Korea 166 Denmark 197 Taiwan 86 Belgium 165 Others 67 Sweden 13 Total 8,612 Japan 1 Total 1,407 Total world 49,332

1) Delivered Vestas wind turbines as at 31 December 2011.

Overview · Vestas annual report 2011 011

Management report

014 Disappointing results 014 Financial performance 017 Outlook 017 Costs reduced through reorganisation 018 Wind. It means the world to us. 019 Vision 020 Mission 021 Employees 022 Business development 025 Environment 027 Risk management 030 Events after the balance sheet date 032 Accounting policies for non-financial highlights 033 The independent auditor’s statement concerning non-financial highlights Management report

Disappointing results postponed and that they are expected to be handed over and recog- 2011 was a very challenging year for the wind industry. The same nised as income in 2012, however, at a lower contribution margin due applies to Vestas which had to issue two profit warnings and abandon to higher costs than originally anticipated. its Triple15 targets. Vestas recorded revenue of EUR 5.8bn and an EBIT margin before special items of (0.7) per cent in 2011, slightly On the other hand, it was satisfactory that Vestas met its target of an below the preliminary financial figures for 2011 announced on order intake of 7,000-8,000 MW despite macroeconomic instability 3 January 2012 due to later-than-expected delivery. However, the and financial turmoil, recording an intake totalling 7,397 MW at a revenue and EBIT margin deviate substantially from Vestas’ original value of EUR 7.3bn. Vestas has delivered a satisfactory free cash flow, forecast of EUR 7bn and 7 per cent, respectively. which in spite of the deferred shipments and extra costs, amounted to EUR 79m, thus meeting the expectations about a positive free cash The principal reason for the deviations was deferred shipments due flow. Finally, it should be emphasised that safety at Vestas’ workplaces to the slower-than-expected commissioning of the new generator was once more improved, as the company recorded an all-time low factory in Travemünde, Germany, and poor weather towards the end incidence of industrial injuries of 3.2 per one million working hours. of the year; for instance, in Germany, where wind speed in December was 30 to 45 per cent higher than the average for the past ten years, Financial performance which made turbine installations challenging. In addition, results for Level of activity the year were affected by unforeseen high costs, primarily in connec- In 2011, Vestas produced and shipped 2,571 wind turbines with tion with the industrialisation of the V112-3.0 MW turbine and the an aggregate capacity of 5,054 MW, against 2,025 wind turbines GridStreamer™ technology, cost out initiatives not achieved according totalling 4,057 MW in 2010. A total of 5,217 MW was delivered to to schedule and write-downs of individual projects at a total cost of Vestas’ customers, against 5,842 MW in 2010. At the end of 2011, EUR 149m. Vestas had installed a total of 46,143 turbines with a total capacity of 49,332 MW. The results for the year are disappointing. It should be emphasised, however, that the projects in question have not been cancelled but

Reasons for revenue adjustments (mEUR) Reasons for EBIT adjustments (mEUR)

7,500 500 490 199

7,000 600 400 7,000

300 35 145 6,500 210

140 200 50 164 6,000 149 5,836 100

5,500 0

(22) (60) 5,000 -100 Special items Volume effect effect Volume effect Volume Production delays Production Cost overruns and Cost overruns at generator factory at generator from revenue change from revenue change from revenue Realised EBIT in 2011 Realised EBIT Expected EBIT in 2011 Expected EBIT Weather-related delays Weather-related Delayed commissioning Delayed write-downs on projects Customer-related delays Customer-related delays Realised revenue in 2011 Realised revenue Expected revenue in 2011 Expected revenue sioning at generator factory sioning at generator Costs from delayed commis- Costs from delayed

Ref. annual report 2010 disclosed on 9 February 2011 Ref. annual report 2010 disclosed on 9 February 2011 Ref. company announcement No. 44/2011 disclosed on 30 October 2011 Ref. company announcement No. 44/2011 disclosed on 30 October 2011 Ref. company announcement No. 1/2012 disclosed on 3 January 2012 Updated ﬁgures compared to company announcement No. 1/2012 disclosed on 3 January 2012

014 Vestas annual report 2011 · Management report The order intake for the year was 7,397 MW (EUR 7.3bn) which was Gross profit and EBITDA in line with the expectations. 62 per cent of the orders was announced Vestas’ gross profit amounted to EUR 725m in 2011, equal to a gross publicly. margin of 12.4 per cent, a 4.6 percentage point decline relative to 2010. The lower margin reflects the lower-than-expected deliveries in In terms of geography, Europe and Africa accounted for 50 per cent, 2011 and unforeseen expenses for industrialisation of the V112-3.0 the Americas for 34 per cent and Asia Pacific for 16 per cent of the MW turbine and the GridStreamer™ technology. EBITDA fell by 59 per 7,397 MW. In 2010, the order intake was 8,673 MW, and Vestas has cent to EUR 305m, which translates into an EBITDA margin of 5.2 per thus for the second year running increased its order backlog, which cent. at the end of 2011 amounted to 9,552 MW and EUR 9.6bn against 7,622 MW and EUR 7.7bn at the end of 2010. Depreciation, amortisation and write-downs amounted to EUR 365m. The increase in depreciation and amortisation was primarily due to the This means that Vestas starts 2012 with the biggest order backlog start of serial production of both the V112-3.0 MW turbine and the ever. In terms of MW, Europe and Africa account for 60 per cent of the GridStreamer™ technology, which means that capitalised development backlog of orders, the Americas for 25 per cent and Asia Pacific for costs are now amortised. 15 per cent. Research and development costs MW overview per region Completion of the development of the V112-3.0 MW turbine and the GridStreamer™ technology as well as the V164-7.0 MW offshore tur- Europe and Asia bine were some of the large projects undertaken by the R&D depart Africa Americas Pacific Total ment in 2011.

MW under completion, Research and development costs increased to EUR 203m from 1 January 2011 1,246 291 447 1,984 EUR 150m in 2010. Total research and development expenditure MW delivered to customers amounted to EUR 402m in 2011, against EUR 372m in 2010. Of this during 2011 (2,351) (1,847) (1,019) (5,217) amount, EUR 302m was capitalised in 2011, against EUR 292m in MW produced and shipped 2010. during 2011 2,237 1,916 901 5,054 MW under completion, Distribution expenses 31 December 2011 1,132 360 329 1,821 Distribution expenses amounted to EUR 208m, which is on a par with 2010. At the end of the year, turbine projects with a total output of 1,821 MW were under completion. A large proportion of these are Administrative expenses included in inventories and prepayments, as the bulk of the projects In 2011, administrative expenses amounted to EUR 352m, which is cannot be recognised until the turbines have been finally handed over on a par with 2010. The announced cost reductions are intended to to the customers. reduce administrative expenses during 2012.

Income statement Operating loss Revenue The Group reported an operating loss (EBIT) before special items of Revenue declined by 16 per cent to EUR 5,836m in 2011. Europe EUR (38)m in 2011, a decline of EUR 506m relative to 2010. The EBIT and Africa accounted for 52 per cent of annual revenue. The Americas margin before special items was (0.7) per cent in 2011 against 6.8 per and Asia Pacific accounted for 36 per cent and 12 per cent of annual cent in 2010, which is disappointing, emphasising that Vestas’ cost revenue, respectively. base had not been aligned to the lower-than-expected level of activity.

Revenue in the service business amounted to EUR 705m in 2011, an Including special items, which in 2011, among other things, relates increase of 13 per cent relative to 2010. The service business EBIT to the tower factory in Varde, Denmark, EBIT was EUR (60)m, cor- margin was 16 per cent. responding to an EBIT margin of (1.0) per cent. The result deviates by 8 percentage points or EUR 550m from the originally disclosed Measured on a quarterly basis, the bulk of Vestas’ revenue typically outlook for the year. Part of this change is due to deferred projects derives from wind turbines produced and shipped in previous quarters. and is thus not lost, but postponed to 2012, when they are expected As a result, there may be large quarter-on-quarter fluctuations in the to be recognised concurrently with the final delivery of the projects in level of activity, revenue and earnings because each project is typically question. recognised once the turbines have been finally handed over. However, Vestas receives most of its payments before the projects are finally Financial items and tax handed over to the customers and recognised as income. In 2011, financial items represented a net expense of EUR 93m, which was higher than the expected level of EUR 60m, primarily as a Distribution of revenue result of higher adjustments related to hedging in the fourth quarter. Financial items in 2010 represented a net expense of EUR 72m. (mEUR) 2011 2010 In 2011, the tax rate was 8 per cent against 34 per cent in 2010. The Europe and Africa 3,053 4,162 adjustments from previous years and higher tax rates in overseas Americas 2,068 1,626 profitable subsidiaries resulted in positive paid taxes in 2011. Asia Pacific 715 1,132 Total 5,836 6,920 Balance sheet Vestas’ total assets rose to EUR 7,689m in 2011 from EUR 7,066m - of which service revenue 705 623 in 2010.

Management report · Vestas annual report 2011 015 MW delivered Non-current assets Non-current assets amounted to EUR 3,522m at the end of 2011, an 2011 2010 increase of EUR 531m since the end of 2010. Europe and Africa Germany 390 261 Net working capital Sweden 309 358 At 31 December 2011, Vestas’ net working capital amounted to EUR France 287 212 (71)m, which corresponds to (1.2) per cent of annual revenue and an improvement of EUR 743m relative to the end of 2010. The reduc- Romania 216 228 tion of the net working capital is attributable to higher trade payables, Turkey 180 96 lower inventories and higher prepayments, which also comprise pro- Italy 178 248 gress payments. Spain 161 179 Denmark 130 77 Inventories United Kingdom 106 533 Inventories amounted to EUR 2,546m at the end of 2011, a decline Greece 100 155 of EUR 189m relative to the end of 2010. A large part of Vestas’ Poland 72 87 inventories consists of wind turbines that have been shipped but not yet handed over to the customers. Vestas is dedicated to reducing the Austria 46 6 part of its inventories that is included in the production and thereby Netherlands 41 6 release capital. Portugal 35 10 Ireland 30 118 The growing professionalism among suppliers and in-house at Vestas Cap Verde 23 0 has allowed Vestas to restructure its production to make-to-order, Belgium 20 183 which structurally will entail a reduction of inventories. Bulgaria 11 219 Trade receivables Finland 9 0 Trade receivables amounted to EUR 663m at the end of 2011, an Czech Republic 4 14 increase of EUR 39m relative to the end of 2010. Ukraine 3 0 Cyprus 0 82 Net debt Hungary 0 21 The average interest-bearing position was EUR (990)m in 2011, Switzerland 0 16 against EUR (593)m in 2010. At the end of 2011, the net interest- South Africa 0 2 bearing debt was EUR 545m, which was 6 per cent lower than the net debt at the end of 2010. Total 2,351 3,111 The net debt/EBITDA ratio rose to 1.79 in 2011 from 0.77 in 2010. Americas USA 1,552 1,093 Other financial matters Canada 192 172 Vestas expects to be able to finance its organic growth through cash Argentina 76 0 flows from operations. On 1 July 2011, the company raised a five-year revolving credit facility for EUR 1.3bn with nine international banks, Dominican Republic 25 0 which supplements the five-year euro-denominated bond for EUR Uruguay 2 20 600m issued in March 2010 and listed in Luxembourg. In addition, Mexico 0 102 Vestas has a loan for EUR 250m with the European Investment Bank, Brazil 0 74 a loan for EUR 55m with the Nordic Investment Bank and bilateral Jamaica 0 18 facilities. As per 31 December 2011, Vestas did not draw on its EUR Chile 0 3 1.3bn revolving credit facility. Total 1,847 1,482 Warranty provisions In 2011, Vestas made total warranty provisions of EUR 148m. This Asia Pacific equals 2.5 per cent of revenue, which is 0.3 percentage points lower China 501 857 than in 2010 when provisions represented 2.8 per cent of revenue. India 276 242 Vestas constantly improves the reliability of its turbines owing to Australia 200 150 increased investments in development, testing, monitoring and servic- New Zealand 36 0 ing of wind power plants. In 2011, Vestas consumed warranty provisions totalling EUR 179m. Vietnam 6 0 Total 1,019 1,249 Vestas makes provisions for all costs associated with turbine repairs within the warranty period, and any reimbursement is not offset unless Total world 5,217 5,842 a written agreement has been made with the supplier to that effect.

Vestas also makes provisions to cover anticipated expenses for major repairs and replacements in connection with the conclusion of long- term service contacts.

The typical warranty period is currently two years as opposed to previously, up to five years, and that reduces Vestas’ risk exposure.

016 Vestas annual report 2011 · Management report Changes in equity fixed costs by more than EUR 150m with full effect as from the end of Vestas’ equity amounted to EUR 2,576m at the end of 2011 com- 2012. pared with EUR 2,754m at 31 December 2010. At 31 December 2011, the solvency ratio was 34 per cent, against 39 per cent at the The free cash flow is expected to be positive in 2012. end of 2010. Vestas is aiming to reduce the incidence of industrial injuries to no Cash flow and investments more than 3.0 industrial injuries per one million working hours. In 2011, cash flows from operating activities were EUR 840m, an increase of EUR 784m relative to 2010 in spite of the lower operat- In the medium term, Vestas expects to achieve a high single-digit EBIT ing results. The primary reason is the strong improvement of the net margin, subject to a normalised US market. working capital. Cash flows for investments amounted to EUR 761m, of which EUR 344m in intangible assets. Total investments were thus Costs reduced through reorganisation lower than the originally projected EUR 850m, primarily due to lower Globalisation implemented investments in China and Vestas Nacelles’ facilities. Total investments Vestas has globalised its production platform under the principle “In concerned especially the conversion of factories to the new platforms the region for the region”. The globalisation will ensure lower produc- and turbine types as well as development projects. tion and transport costs, shorter distances to customers and markets, while at the same time reducing the environmental impact. Finally, The free cash flow rose by EUR 812m to EUR 79m. Vestas thus met Vestas has become more robust towards exchange rate fluctuations. the forecast to generate a positive free cash flow. Vestas previously manufactured wind turbines in Europe to transport Outlook them to other regions such as North America. In 2011, however, 80- Based on, among other things, input from a number of the company’s 90 per cent of a Vestas turbine was typically manufactured regionally, large shareholders, Vestas has decided to reduce the number of out- including components from suppliers. In 2007, 21 per cent of Vestas’ look parameters it provides to the public. Furthermore, Vestas has employees worked in non-European countries. By the end of 2011, decided to introduce guidance ranges for earnings (EBIT), revenue and this figure had risen to 38 per cent. the free cash flow to take into account the heavy fluctuations charac- terising these items depending on timing of order intake, production, Until now, Vestas has handled most of its production in-house to shipments and final deliveries to the customers. ensure the necessary quality. This applies to components such as electronic control systems, blades, hubs for towers and the load- For 2012, Vestas expects to achieve an EBIT margin of between bearing nacelle constructions. Many of our suppliers have grown with 0-4 per cent and revenue of EUR 6,500-8,000m, including service our business and are currently able to deliver the required quality on revenue, which is expected to rise to approx EUR 850m with an EBIT time. This allows Vestas to increasingly manufacture to order and margin of around 14 per cent. thereby reduce its inventories, while leaving a greater share of wind turbine production in the hands of selected local and international The EBIT margin will be adversely affected primarily by too high pro- partners. Going forward, Vestas therefore will have a relatively lower duction costs for the V112-3.0 MW turbine and the GridStreamerTM need for investments, resulting in a leaner Vestas with relatively fewer technology, which will be reduced in the course of the year and by an employees who increasingly control and coordinate supplier relation- expected increase in depreciation and amortisation charges of approx ships. EUR 100m. The new Vestas Due to an excessive cost base in relation to the cur- Total warranty and product provisions are expected to account for less rent activity level and in order to allocate more resources to direct than 3 per cent of the expected revenue for the year. customer-oriented activities, in November 2011 Vestas announced an organisational restructuring of its business. Having received input Shipments which are expected to increase to approx 7 GW with the from a number of the company’s large shareholders, the Executive present production plans will peak in the middle of the year, while Management, on 12 January 2012, presented a new organisational deliveries may fluctuate heavily over the quarters. It should be em- structure designed to help secure future growth and earnings. phasised that Vestas’ accounting policies only allow it to recognise supply-only and supply-and-installation projects as income when the ··Vestas needs to reduce its fixed costs by more than EUR 150m risk has finally passed to the customer, irrespective of whether Vestas – with full effect as from the end of 2012 – primarily through has already produced, shipped and installed the turbines. Disruptions streamlining of support functions and closing of factories to align in production and challenges in relation to wind turbine installation, capacity with market demand. A total of 2,335 employees are for example bad weather, lack of grid connections and similar matters expected to be made redundant. may thus cause delays that could affect Vestas’ financial results for ··The aim of the restructuring is to create an even more inclusive 2012. Vestas organisation that better meets the interests of the stakeholders i.e. customers, shareholders and employees. Going Total investments are expected to be EUR 550m, of which invest- forward, the understanding and management of this will be an ments in intangible assets are expected to amount to EUR 350m, important leadership competency. The Executive Management has which among other things, includes higher investments in the devel- been enlarged to six members to allow greater focus on all key parts opment of the V164-7.0 MW offshore turbine. Total research and of the value chain and to drive a stronger performance management. development expenditure is now expected to amount to EUR 450m in ··A Global Solutions and Services unit will contribute to improving the 2012. The lower investments in intangible assets and R&D expendi- performance of both existing and future wind power plants and will ture are caused by a more focused R&D organisation. accelerate the development of the Solutions and Services business. ··Manufacturing has been consolidated to capture cost synergies Special items in 2012 relative to lay-off of around 2,335 employees, and reduce the amount of investments required for future growth which was announced on 12 January 2012, are expected to amount as well as to increase flexibility in the event of a prolonged industry to approx EUR 50m with full cash effect. Vestas expects to reduce slowdown.

Management report · Vestas annual report 2011 017 Improved quality, strengthened R&D efforts and regionalisation 2011 2010 2009 2008 2007 Order intake (bnEUR) 7.3 8.6 3.2 6.4 5.5 Order intake (MW) 7,397 8,673 3,072 6,019 5,613 Produced and shipped (MW) 5,054 4,057 6,131 6,160 4,974 Deliveries (MW) 5,217 5,842 4,764 5,580 4,502 Revenue (mEUR) 5,836 6,920 5,079 5,904 3,828 Gross margin (%) 12.4 17.0 16.5 19.1 15.3 Warranty provisions (%) 2.5 2.8 5.8 4.5 6.6 EBIT margin before special items (%) (0.7) 6.8 4.9 10.4 5.3 Net working capital (%) (1.2) 9.7 6.2 (1.2) (10.7) Return on invested capital before special items (%) (1.3) 10.8 9.5 43.4 21.3 Investments (mEUR) (761) (789) (808) (680) (317) Free cash flow (mEUR) 79 (733) (842) (403) 384 Number of employees, year-end 22,721 23,252 20,730 20,829 15,305 - of which, outside Europe and Africa 8,603 8,127 6,569 5,320 3,232 Number of R&D employees, year-end 2,037 2,277 1,490 1,345 650

··On top of the expected lay-off of 2,335 employees in 2012, Vestas rights, labour rights, the environment and anti-corruption. In 2011, is preparing for a potential reduction in the US market in the event Vestas became one of 56 elite companies in the Global Compact case the current PTC subsidy scheme is not extended. This could LEAD undertaking to take the lead in respect of sustainability. result in the lay-off of an additional approx 1,600 employees at the US factories. Based on its ongoing dialogue with customers, shareholders, employees, government entities, NGOs and suppliers, Vestas maps Business priorities out the topics and the indicators that reflect the organisation’s prin- The new organisational structure is designed to maintain Vestas’ cipal economic, environmental and social impacts. These efforts are global footprint and increase customer proximity, while at the same a prerequisite for Vestas to accommodate stakeholder requests for time reducing costs and the relative capital requirement. Vestas’ busi- increased sustainability in the ways in which the company acts and ness, financial, social and environmental priorities reflect the com- communicates. pany’s overall targets and define the framework for how to accomplish them. This is reflected in Vestas’ social and environmental priorities:

By consistently prioritising its key stakeholders; customers, share- 1. The lowest possible incidence of industrial injuries, the ultimate goal holders, employees and the surrounding society, respectively, Vestas being to avoid accidents altogether; aims to maintain and if possible to consolidate its market-leading 2. During its lifetime, the wind turbine must be as CO2-efficient as position. possible. 3. As much of the wind turbine as possible must be recycable when it has Financial priorities been decommissioned. Vestas has the following financial priorities: 1. EBIT margin: Wind. It means the world to us. Vestas has defined a goal of achieving a high single-digit EBIT For more than 30 years, Vestas has operated in the field of wind margin in the medium term, subject to a normalised US market. power. During the first quarter of 2012, Vestas expects to install MW 2. Free cash flow: number 50,000, thereby consolidating its position as the world’s lead- Vestas expects to be able to finance its own growth and generally ing manufacturer of wind power solutions. Having installations in 69 aims to generate a positive free cash flow in each financial year. countries, Vestas is by far the most global wind turbine manufacturer. Launching new platforms such as the V164-7.0 MW turbine, however, is an investment-intensive process. Accordingly, Vestas In the years ahead, when wind will come to represent a growing pro- may experience a negative free cash flow in specific years. portion of the combined energy supply, Vestas must consolidate its 3. Revenue: position as the leading brand in renewable energy in a market charac- Vestas expects to be able to increase its market share, and the terised by ever-growing competition. All the prerequisites for continu- service business, which is more profitable than the sale of wind ing growth are in place, because wind power is: turbines, is expected to be the fastest growing segment. 1. Financially competitive: Social and environmental priorities The price of fossil fuels is expected to rise relative to the price of Vestas’ standards and goals in respect of sustainability and social wind power in the future. responsibility build on recognised conventions established by inter- 2. Predictable: national organisations such as the UN, ILO and OECD. In 2009, Vestas Over time, the volume of wind is stable, and wind will always be free. joined the UN Global Compact initiative and the company supports 3. Independent: the Compact’s ten generally recognised principles in respect of human Wind power is generated and controlled locally.

018 Vestas annual report 2011 · Management report 4. Fast: nies. Key Account Management systematises customer relations, it Compared with coal, gas and nuclear power plants, wind power increases customer loyalty and improves Vestas’ competitive strength plants can be built over a short period of time. in an increasingly challenging market by offering them direct and swift 5. Clean: access to Vestas’ organisation.

Wind turbines generate power without emitting CO2, NOX and SOX and without consuming any water. The global Key Account Management organisation was fully implemented in 2011, when Vestas appointed Key Account Managers for WindMade™ all of its key customers. In 2012, Vestas will draw on the positive expe- Time is working for wind power. According to the survey Global Con- rience when targeting a broader selection of its customers. Vestas re- sumer Wind Study 2011, 90 per cent of the world’s consumers would views and adjusts the number of key accounts in an ongoing process. like to have more renewable energy. 79 per cent look more favourably upon goods manufactured using wind power, and 50 per cent are pre- In 2011, the positive Key Account Management experiences pared to pay more for goods manufactured using wind power. Another helped Vestas to win its largest-ever framework agreement for up to survey, Corporate Renewable Energy Index 2011, shows that compa- 2,000 MW with EDF Energies Nouvelles, which is part of the French nies around the world increasingly acknowledge this consumer trend EDF. In October 2011, Vestas received its first order for the offshore and therefore seek to increase their use of renewable energy. version of the new V112-3.0 MW turbine from another key account: E.ON Climate & Renewables GmbH ordered 89 turbines with a com- Consequently, Vestas was a co-initiator of the WindMade™ eco label, bined output of 267 MW. Consequently, Vestas has received more which is to allow consumers to choose products manufactured us- than 550 MW of orders from E.ON in 2011. ing wind power. The participating companies – including Bloomberg, Deutsche Bank and Motorola Mobility – have signed a declaration of Vestas also signed an agreement with yet another key account. The intent to the effect that wind power is to cover at least one-fourth of Danish power company, DONG Energy, will become one of the first their power consumption. customers to test a prototype of the future V164-7.0 MW offshore turbine. The agreement is an example of how Vestas consolidates the Vestas itself is to be WindMade™. With the ambition of renewable partnership with its customers through Key Account Management and energy accounting for 55 per cent of its total energy consumption by provides its customers with an opportunity early in the partnership to 2015, Vestas aims to show the world that large production companies take part in the development and testing of new products. can reduce their environmental footprint and pave the way for a “CO2- free economy”. Customer satisfaction All over the world, the performance of Vestas’ turbines is constantly In the autumn of 2011, Vestas also launched a campaign targeting improving, and the cost per MWh produced is becoming increasingly carbon conscious corporations. The campaign addresses businesses competitive. Through a greater focus on customer needs and intensi- which have defined a green agenda. With this initiative, Vestas intends fied engagement, Vestas aims to become a more flexible and knowl- to boost interest in direct wind power investment. Pension funds have edgeable business partner because significantly improved customer also taken an interest in wind power because a wind power plant is satisfaction is a prerequisite for Vestas to retain its leading position in comparable to a 25-year green bond generating a predictable and a hugely competitive market expected to witness consolidation. often inflation-proof cash flow. As in previous years, Vestas conducted a loyalty survey among its cus- Customers tomers. A total of 1,002 persons from 353 customers in 43 countries Vestas will never rely on a single market or a single customer. Compris- participated in the survey, which was conducted from 20 December ing both large and small customers, partnerships provide Vestas with 2011 to 27 January 2012, against 986 persons from 348 customers the most robust and flexible business platform in terms of geography, in 2010. order types and payment conditions. Several types of customers with different motives enhance Vestas’ opportunities in a market that, in With a loyalty index of 69, Vestas almost achieved its 2011 target the short term, will be marked by financial instability, limited growth index of 72. This was an improvement from 64 in 2010. The improve- and an expected reduction in the number of players. ment was attributable especially to the constantly improving turbine performance as well as strengthened customer dialogue and a sys- In 2011, when energy and utility companies accounted for 43 per tematisation of follow-ups on any faults and customer enquiries. cent of revenue compared with 46 per cent in 2010 and 58 per cent in 2009, Vestas’ revenue was distributed among 223 customers. The Effective from 2011, Vestas has extended its customer satisfaction figures for 2010 and 2009 were 212 and 201, respectively. A total of survey by adopting a more detailed methodology. The Customer Rela- 308 projects were delivered to Vestas’ customers in 2011. The trend tionship Strength Indicator (CRSI) measures four parameters: towards customers becoming larger and larger, places heavy and increasing technical demand on the Vestas organisation. The ten largest ··Customer loyalty score customers accounted for 33 per cent of revenue, against 26 per cent ··Net promoter score in 2010. ··Preferred partner score ··Reputation score Of the total order intake of 7,397 MW in 2011, the average order was for 22 MW, the biggest one being the 267 MW order from E.ON Climate Vestas achieved a CRSI score of 77 in 2011, compared to 74 in 2010. & Renewables GmbH. The smallest order was for 1 MW. The ten largest The target for 2012 is an index of 81, which would match the level customers accounted for 21 per cent of the order intake in 2011. of some of the best brands in the world. Customer relations score will continue to be a component of Vestas’ bonus scheme. Key Account Management Key Account Management is one of the customer-directed initiatives Vision that helps build collaborations with large utilities with international In 2011, the world’s population reached seven billion. The UN projects operations as well as project developers and national power compa- that the global population will have increased by another two billion

Management report · Vestas annual report 2011 019 by 2050. This means that the Earth over the course of only a few years The future expansion of wind power is underpinned by the fact that will experience population growth equal to the global population at the price of fossil fuels is expected to rise measured at constant prices around the time of World War I. At the same time, the populations of due to population growth and increased consumption per capita, the developing countries have a legitimate wish to raise their stand- especially in non-OECD countries. According to Bloomberg New ards of living. This will lead to higher energy consumption per capita. Energy Finance, wind power costs measured per kWh has declined by on average 14 per cent every time installed capacity has doubled If the world remains reliant on non-renewable sources of energy, the since the 1980’s. Vestas expects that the price of wind power will Earth will be further burdened by maintaining the population’s energy continue to narrow the gap to the price of electricity produced by fossil consumption. The world’s CO2 emissions cause a greenhouse effect fuels and that it will eventually drop below these prices in a number of which is expected to raise the average temperature by four degrees markets. The greater the investment in wind power, the faster prices Celsius in this century. This will lead to further climate changes in the will fall. Vestas predicts a world in which the cleanest energy is also the form of more extreme weather conditions such as droughts, storms and cheapest. flooding, and large areas will be flooded by sharply rising water levels. Among renewable sources of energy, wind power is currently the Wind power and other renewable energy sources may contribute to most economically means of ensuring that the many national climate sustainable economic growth for millions of people around the world. targets are reached. Vestas expects that, if the necessary political ”Wind, Oil and Gas” is Vestas’ vision, which expresses the ambition of decisions on a national and international level to expand the power making wind an energy source on a par with fossil fuels. grid and appoint sites are made now, the share of wind power relative to the total electricity production can be increased from about 2 per

Vestas is confident that a robust price on CO2 will pave the way for cent globally today to more than 10 per cent over the course of ten the necessary climate investments. Such measure would provide in- years. Along the way, the wind power industry, including the many sup- dustrial and financial investors with a higher degree of predictability pliers, will be able to create more than two million jobs worldwide. The than the present quota system, which leads to large fluctuations in the key to realising the potential is having long-term, national mechanism price of CO2. In November 2011, Australia paved the way by introduc- that provide the industry with the necessary opportunities to plan and ing a fixed price on CO2. invest in employees, technology and production facilities.

The credit crisis and the economic slowdown in the OECD countries G20 have made many countries reluctant to go through with climate At the G20 summit in Cannes, France, Vestas and other companies investments. Continuing global concerns about the economy, tight maintained their 2010 proposals for the 20 heads of state and gov- fiscal policies and the very low gas prices in certain markets will repre- ernment, recommending how their countries can ensure strong and sent a challenge to the wind power industry. The same applies to the sustainable growth in the global economy in the years ahead. historically low prices on CO2 credits which reduce the cost of buying

CO2 reductions in e.g. developing countries. ··Make the price of CO2 predictable and sufficiently high to cause people to change their behaviour and investment decisions. However, a number of countries have now defined long-term national ··Permit free trade in environment-friendly goods and services. and local climate targets. China has tabled a five-year plan, which ··Increase initiatives in cleantech research and development. includes wind power, whilst the EU has taken the lead by defining a ··Phase out government subsidies for fossil fuels no later than in five target that 20 per cent of the energy consumption must be covered by years. renewable energy sources already by 2020. The Cannes summit was only the second time that green growth was South America is experiencing high gas prices, and dry summers re- on the G20 agenda. Vestas looks forward to the next G20 summit in duce the amount of hydropower. Consequently, ambitious plans have Los Cabos, Mexico. The host country is a good example of a country been proposed for increasing the use of wind power. According to EER, that has already launched a number of initiatives to underpin a more Brazil and Mexico are expected to increase their installed capacity sustainable development. by 3,500 MW and 1,000 MW, respectively, over the next four years, while Chile and Uruguay are also expected to witness strong growth in Mission wind power during the same period and install 605 MW and 450 MW, Vestas’ mission, Failure is not an option, expresses the organisation’s respectively. For Vestas, total order intake from the Latin American commitment to constantly seeking improvements and to constantly markets in 2011 amounted to 742 MW – almost four times higher following up on and rectifying errors in a structured manner. than the year before. A direct result of Vestas’ mission is indicated by the so-called Lost In the USA, an agreement on federal climate and energy targets which Production Factor, which is the share of the wind not harvested by the may underpin the green ambitions already defined by more than 30 turbines. In the autumn of 2011, Vestas reduced its Lost Production states remains pending. Vestas is preparing for the non-renewal of the Factor to just 2 per cent for the first time. In 2012, Vestas expects the US Production Tax Credit (PTC) beyond 2012, which will have notable, Lost Production Factor to drop below 2 per cent. adverse consequences for the US market, where the lower price of gas squeezes the power price and, by extension, the price of wind power. A low Lost Production Factor is to the benefit of customer earnings Vestas encourages the US decision-makers to extend the PTC in order and Vestas’ expenditure alike. Consequently, knowledge about the to retain the positive developments in the US wind industry and thus output and general condition of each turbine is the backbone of secure many American jobs and a more independent energy supply. Vestas’ future growth. The continuing fall in the Lost Production Factor is the result of the interaction between optimum landscape position- Cost of Energy ing of turbines, improved design, thoroughly tested quality, optimised Vestas must consistently develop, manufacture and service in a way service and spare parts logistics and ever-more intensive monitoring that ensures more robust and reliable wind power plants, thereby of the turbines. Vestas currently monitors more than 20,000 turbines, reducing the price differential to newly built fossil fuel fired plants. To- or 35,450 MW, round the clock, and this opens up for effective mainte- day, one onshore kWh from Vestas costs 4-7 eurocents. nance planning, higher uptime and performance for the turbines.

020 Vestas annual report 2011 · Management report Lost production factor (%) Diversity Vestas seeks to attract and retain the most skilled and committed 5 Grafstørrelse:employees, regardless of nationality, gender, professional groups or Bredde 79,5other mm differences. Vestas is keen to create a corporate culture in which Højde 68all mm employees thrive and are able to create the best possible results for Vestas and themselves. 4 Bredde kan forøges efter behov så det passerVestas i illustrationsfeltet is facing new demands from the more and more differentiated customer base, increased globalisation and competition for talent as Husk at indsætte tusindtalsepera- well as increasing demands for flexible, adaptable and broadly-com- 3 tor manuelt efter indtastning/ændringposed leadership. af talgrund In 2012,- Vestas will embark on dialogue with and lag. training of its top executives to ensure greater diversity at Vestas, so that the company will reflect its surrounding society to a much greater extent than it does today. 2 At the end of 2011, the Group’s employees represented 87 nationalities. Non-Danish nationals held 53.4 per cent of the positions in 1 the top management layers, and 18.4 per cent were women. Vestas aims to increase the number of nationalities at all locations without jeopardising the local roots. Going forward, the intention is for the proportion of women managers to rise and to increase the share of 0 non-Danish nationals in management positions. 2009 2010 2011 Safety Personal safety is always given top priority at Vestas because its employees are entitled to it and its customers request it. Through greater focus, intensive training and the dedicated effort of its employees, Vestas has managed to reduce the number of accidents year after year.

Another indication of Vestas’ endeavours to achieve constant Continuing its decline, the incidence of industrial injuries was 3.2 per improvements is the ambition to attain a Six Sigma quality level one million working hours in 2011, which was much below the 5.0 throughout the value chain no later than by 2015. target and a great improvement on 2007, when the incidence rate was 20.8. One of our colleagues was killed in a tragic industrial accident in Employees India on 25 January 2011. Since 2006, Vestas has recruited 10,412 employees, net. At the end of 2011, Vestas had 22,721 employees distributed on 37 countries. The target is 0.5 industrial injuries per one million working hours in 2015, the ultimate goal being to avoid accidents altogether. In connection with the reorganisation announced on 12 January 2012, Vestas announced the lay-off of 2,335 employees. The planned Vestas has a comprehensive safety training programme for its manag- redundancies will primarily be in Denmark and the rest of Europe and ers. The training programme is based on five safety principles that will will take place during 2012. After the reorganisation, Vestas expects guide the employees in their everyday work: to employ a total of approx 20,400 employees. Vestas is also preparing for a potential slowdown in the US market in case the PTC is ··Every hazard can be managed. not extended. This could result in the lay-off of an additional approx ··All industrial injuries can be prevented. 1,600 employees at the US factories. ··Management is accountable for safety. ··People are the most important component in a safety effort. Vestas employees at 31 December 2011 ··Working safely is a condition of employment at Vestas Europe and Asia A key component of the training effort is “safety walks”, in which the Africa Americas Pacific Total general management demonstrates visible involvement in safety aspects. Production units 6,871 1,710 2,419 11,000 Sales units 4,450 1,472 1,759 7,681 Reports on and measures to prevent injuries build on Vestas’ OHSAS R&D 1,283 211 543 2,037 18001 certification from 2000. At the end of 2011, 97 per cent of all Others 1,514 100 389 2,003 Vestas’ units had been certified. Total 14,118 3,493 5,110 22,721 Employee protection Venturing into new markets such as Kenya, Mexico and Pakistan, Vestas seeks to promote a culture characterised by independent where the local infrastructure and stability may be inadequate, Vestas initiative and collaboration across professional, cultural and organi- faces a new situation in terms of employee protection. Vestas has sational boundaries and in which the dynamics and sense of respon- therefore established a security department consisting of a network of sibility that usually characterise a small company are retained. Vestas regional risk managers who will provide support across the organisa- should always be a challenging, ambitious, exciting and attractive tion in order to ensure that all employees are consistently aware of the workplace – also in very challenging times with prospects of constant challenges they may come across. Vestas will regularly develop and change and adjustment. adjust fixed procedures to identify and handle new security risks.

Management report · Vestas annual report 2011 021 Rights Onshore product portfolio In 2011, Vestas defined global policies concerning human rights, free- IEC wind classes IEC I IEC II IEC III dom of association and the right to collective bargaining. The policies High Medium Low summarise Vestas’ obligations and cover all of the company’s units, wind wind wind while also describing Vestas’ approach to external business partners. Kilowatt platform Vestas expects all of its business partners to respect human rights V52-850 kW X X and that they actively work to promote responsible behaviour. The V60-850 kW X X rules will be communicated to all relevant stakeholders. Potential complaints from business partners and employees about violations of 2 MW platform rules may be submitted anonymously via Vestas’ EthicsLine, see the V82-1.65 MW X X section Corporate Governance. V90-1.8 MW X In 2011, Vestas started to host webinars on human rights, freedom of V90-1.8 MW GridStreamer™ X association and the right to collective bargaining for selected in-house V100-1.8 MW X stakeholders, especially employees working with sustainability. In V100-1.8 MW GridStreamer™ X 2012, the webinars will be supplemented by e-learning programmes V80-2.0 MW X for relevant functions. V80-2.0 MW GridStreamer™ X V90-2.0 MW X Vestas has also been working on a global Labour Standards Self-as- V90-2.0 MW GridStreamer™ X sessment project as part of an assessment of how the company sup- V90-2.0 MW GridStreamer™(IEC IA) X ports global labour standards. The first step in this project was to map out markets with particularly high risk. 30 countries were selected, V100-2.0 MW GridStreamer™(IEC IIA) X X and the persons responsible for each of them were asked to assess whether Vestas complies with the global rules on labour. The resulting 3 MW platform action plans will be implemented in 2012 and the following years. V100-2.6 MW X X V90-3.0 MW X X Satisfaction survey V112-3.0 MW X X Each year, Vestas conducts an employee satisfaction survey. The most recent survey was conducted in November 2011. The response rate was 94 per cent, against 92 per cent both in 2010 and 2009. The overall satisfaction and motivation index was 68 in 2011, against Offshore product portfolio 67 in 2010 and 68 in 2009, and this is a highly satisfactory devel- IEC wind classes IEC I IEC II IEC III opment in light of the announced and implemented redundancies in High Medium Low recent years. wind wind wind Business development V90-3.0 MW offshore X X New products and services V112-3.0 MW offshore X X Knowledge of and the ability to plan, build, operate and service com- V164-7.0 MW X X plete wind power plants for its customers is becoming increasingly important for Vestas as a supplement to developing new turbines. Customers are demanding individual solutions that provide maximum output and involve minimum risk: Vestas must deliver value to its customers, before, during and after the customer has invested in a Designed for delivering maximum output with the highest possible wind power plant. As the service business comes to represent an ever- reliability for the customers, a V164-7.0 MW turbine is able to cover growing share of Vestas’ combined revenue, its earnings will become the annual power consumption of 6,500 European households. Given more robust to short-term fluctuations in wind turbine sales. the average wind resources in the North Sea, 27,500 V164-7.0 MW turbines distributed on an area of 141x141 kilometres can generate As part of the reorganisation, on 1 February 2012 Vestas launched a enough power to supply all households in Europe. Similarly, 44,506 Global Solutions and Services (GSS) unit for developing and support- turbines distributed on 171x171 kilometres can cover the power ing advanced pre-sales and after-market services, SCADA systems, requirements of all US households. wind & site services and spare parts. Also, Global Solutions and Ser- vices is to develop new solutions and offerings supporting further Selected customers have participated in the development process integration of wind power with the grid. for the V164-7.0 MW turbine, thus gaining an early insight into the potential of the turbine and its low Cost of Energy. Once the required Services already form a significant part of Vestas’ business. Based on orders have been received, serial production will commence in 2015. recently signed 10 to 15-year service agreements with leading, global For this purpose, Vestas has an option, which expires in 2013, for 70 wind power operators, Vestas has taken a significant step to further hectares of land at the Port of Sheerness in Kent, UK. The first proto- consolidate the company’s position in services. type of the V164-7.0 MW turbine will be built in 2013 at the Lindø shipyard in Denmark, apart from the blades which will be manufac- Product range tured on the Isle of Wight, UK. On 30 March 2011, Vestas announced the specifications for its new V164-7.0 MW turbine. The V164-7.0 MW is the first dedicated off- Combined with the V112-3.0 MW offshore turbine, the development shore turbine in Vestas’ product range and its largest single research of the new V164-7.0 MW turbine underpins Vestas’ commitment and development investment ever. to offshore operations. In collaboration with a number of business partners, Vestas is testing a floating platform, WindFloat, for large

022 Vestas annual report 2011 · Management report wind turbines for ocean depths of 50 metres or more. These testing Power Plant Solutions activities will continue throughout 2012, providing Vestas with new One of the new services launched in 2011 was Power Plant Solutions, offshore wind power opportunities. which is a collective term for Vestas’ services in the area of planning, projecting, operations, servicing and the constant optimisation of In the first half of 2011, Vestas launched its V100-2.6 MW turbine, complete wind power plants. In its Power Plant Solutions initiative, which accommodates the growing demand for effective and reliable Vestas transforms many years of experience in monitoring wind tur- turbines in the 2.5 MW class for sites with low and medium winds. This bines into services that expand customer partnerships and directly applies particularly to Vestas’ markets in Europe, South America and increase the profitability of customers’ investments, also after the Asia. The V100-2.6 MW turbine exemplifies Vestas’ ability to regu- wind power plants have been installed. larly optimise and improve its product portfolio by applying existing and thoroughly tested technology. Vestas has also updated its popular The range of Power Plant Solutions products include: 2 MW platform – partly with the V100-2.0 MW turbine developed for low and medium-wind sites, partly with the GridStreamer™ variant, ··SiteHunt®: which optimises compatibility with different grids. Vestas thus has a 2 Based on input from 35,000 meteorological stations and a MW turbine for all types of wind and market conditions in its product comprehensive wind data library, wind resources around the globe range, which in recent years has been expanded to also include the are mapped out and the best sites are selected. V112-3.0 MW, V100-1.8 MW and V60-850 kW turbines. ··SiteDesign®: Once the site has been selected, Vestas helps its customers identify With their large rotor diameter relative to the size of the generator, the the most suitable turbines and the best on-site position. V112 and the V100 turbines are designed to ensure optimum output ··Electrical Pre-Design: from sites with low and medium winds, which account for about 75 per Vestas ensures that electricity generated by the wind power plant cent of the world’s wind resources. constantly delivers the maximum output, meeting the requirements and grid codes of the local power grid. Production of the new V112-3.0 MW commenced in 2011. Vestas ··AOM®: is to deliver 140 turbines for the Australian Macarthur project alone, Active Output Management are service concepts tailored to suit on orders from Vestas’ key accounts AGL of Australia and Meridian of desired customer risk profiles. Vestas’ customer base spans from New Zealand. All towers are being manufactured locally by two Aus- customers seeking active involvement in the maintenance of tralian sub-contractors. their wind power plant to customers leaving all maintenance and optimisation efforts to Vestas. In total, more than 30 customers ordered so many V112-3.0 MW ··Power Plant Controller: turbines that the combined orders exceeded 1,000 MW as of 30 Real-time wind power plant control enhances production and September 2011 – a year after the turbine was launched for sale. At increases the level of reliability. This allows a customer to control the end of 2011, Vestas had a backlog of orders for V112-3.0 MW production and to meet the requirements of the local power grid. turbines equal to more than 2 GW. ··Vestas Performance Manager: Online or via a smartphone application, the customer gains an In 2011, the factory at Lauchhammer, Germany, was redesigned to overview of how the turbines are performing and when they are manufacture 55-metre blades for the V112-3.0 MW turbine. Vestas scheduled for service. thus manufactures 55-metre blades for the European market in Lauchhammer and in Lem, Denmark, whilst the new blade factory in In order to make power generation forecasts for specific sites with Brighton, Colorado, USA, is to manufacture for the North American different turbine types even more precise, Vestas began using the market. “Firestorm” super computer in the summer of 2011. At that time, “Fire- storm” was the world’s third-fastest commercially-owned computer. Based on the wind turbine industry’s largest test facilities, the V112- 3.0 MW turbine is among the most thoroughly tested turbines Vestas Service and partnerships has ever launched. The V112-3.0 MW turbine is extensively based on Focusing on maximum output and return from the wind power plants well-known but improved components. through meticulously planned service inspections, Vestas’ service organisation helps ensure more satisfied customers. This has contrib- Wind turbine components uted to making service Vestas’ fastest growing business area. Together with a German collaboration partner, Vestas has developed its first hybrid tower. The tower consists of an 80-metre high concrete At the end of 2011, Vestas had service contracts totalling tower with a 60-metre steel tower on top. The 140-metre hub height 35,206 MW, corresponding to just under three-fourths of the total enhances turbine productivity, especially in forestry areas with low number of MW installed by Vestas. Compared with total service rev- winds. In Germany alone, 19 per cent of all turbine towers are 121 enue of EUR 298m in 2007, service revenue climbed to EUR 705m metres or higher, and demand for these towers is growing. The hybrid in 2011. towers also cushion the impact of high steel prices, benefiting customers and Vestas alike. Going forward, as part of its service growth strategy, Vestas aims – on a limited scale – to render service on non-Vestas turbines for key Vestas has made new advances with the so-called stealth technol- account customers requesting it. ogy, the purpose of which is to make the turbines invisible to radar. In 2011, Vestas and its technology partner QinetiQ performed a num- Partnering is pivotal to Vestas’ operations, and with the AOM service ber of successful tests. In addition, from Norwegian radar specialist concept Vestas has formalised customers’ demand for a trustworthy OCAS AS, Vestas acquired the rights to a system that makes it pos- partnership. The trend towards increased partnering is underlined by sible to keep the turbines’ warning lights turned off until an aircraft the fact that more or less every MW sold and announced in connec- approaches. In this way, Vestas accommodates local concerns over tion with orders concluded in 2011 was accompanied by a service light pollution. Combined with the stealth technology, this opens up for contract. Vestas now offers servicing of the wind turbine throughout new potential wind turbine sites, for example close to airports. its lifetime.

Management report · Vestas annual report 2011 023 Under the AOM5000 service concept, Vestas guarantees minimum Efficiency improvements exploitation of the available wind. Using detailed weather forecasts, Optimised resource utilisation and greater productivity are prerequi- Vestas plans and performs service on days with no or little wind, thus sites for Vestas to retain its competitive strength, minimise the envi- optimising the customer’s power production and ensuring the lowest ronmental footprint of its own production and retain its market-lead- possible Lost Production Factor. Vestas is pioneering this service con- ing position. Vestas must reduce its inventories without increasing the cept, which relocates service and maintenance of the customer’s wind time from receipt of order to shipment and installation. power plant from time-based uptime to capturing the wind; “from hour to power”. Make-to-order Under the make-to-order headline, in 2011 Vestas intensified its Vestas’ service concepts: efforts to reduce inventories. Furthermore, the time from the finished turbines are shipped until they are commissioned was reduced to ··AOM 1000: between 11 and 17 weeks, compared to around 30 weeks in 2010, Without charging a basic fee, Vestas offers the customer a range of leading to an improvement of Vestas’ cash flows. services on a pay-as-you-go basis. ··AOM 2000: Part of the make-to-order concept involves more precise sales fore- The wind turbine is regularly serviced, and the customer has an casts and improved project management from the receipt of an order option to buy additional services. until the turbines are delivered to the customer. The transition to an ··AOM 3000: order-driven supply chain is to the benefit of customers and Vestas A full service solution which includes spare parts and labour. Turbine alike. Make-to-order leads to shorter lead times, enhances flexibility reliability is maximised through both scheduled and unscheduled and accelerates the final delivery of completed projects. service. ··AOM 4000: Vestas can currently accommodate demand for more than 8,500 MW A full service solution aimed at maximising output and uptime, a year, depending on turbine type, distribution of production over the including all required components and a guarantee of traditional course of the year and on the geographical location of the demand. time-based availability of up to 97 per cent. The service contract runs for up to ten years and may be extended by up to five years at a time. IP/IPR strategy ··AOM 5000: Protecting the large number of technologies and the know-how de- A full service solution designed to minimise production loss. The veloped by Vestas is paramount for Vestas to retain its technology service contract runs for up to ten years and may be extended by up leadership position in the industry. Consequently, an IP/IPR strategy to five years at a time. supporting the business strategy and protecting Vestas’ intangible assets has been adopted. The systematic IP/IPR initiatives are to help Suppliers ensure that Vestas can operate freely in all markets and at the same Vestas works closely with its suppliers to improve the professional time, protect Vestas’ know-how, products and investments in product level of the supply chain, enabling the timely supply of components development. The IP/IPR strategy is continuously improved. In 2011, of the right quality at competitive prices. Against this background, in Vestas filed 199 patent applications. 2005, Vestas launched Six Sigma as the Group’s key quality improvement tool. The system has been implemented at Vestas’ own factories Research and development and at its suppliers in all regions. Having become a member of the Through investments in development and test facilities around the Automotive Industry Action Group Forum, Vestas has gained access world, Vestas will seek to consolidate its leadership position within to well-established standards and processes that will improve quality wind power. At the end of 2011, 9 per cent of Vestas’ staff was em- assurance for Vestas and its suppliers. ployed in research and development, which is now organised in specialist centres around the world and managed from Aarhus, Denmark. Longer term, the ambition is to complement in-house production with deliveries from collaboration partners. Vestas must be able to In 2011, Vestas spent a total amount of EUR 402m on wind power take advantage of an industry supply chain which in recent years has technology development. Going forward, Vestas will continue to invest improved significantly, in order for Vestas to reduce its inventories the necessary funds in retaining its technology leadership position and its need for further investments. However, Vestas will continue as the development of the V164-7.0 MW turbine marks the end of a to invest in new facilities, for example for manufacturing of the new major upgrade of Vestas’ overall product range. V164-7.0 MW offshore turbine. In addition to optimised design, which also facilitates the work of Using the Lean and Six Sigma productivity systems, Vestas ensures service technicians, improves safety, reduces weight and enhances a uniform approach to production, including joint processes for the recyclability of all turbine components, Vestas is also investing improvement initiatives which facilitate the identification of syner- considerable resources in optimising the position of each turbine in gies and exchange of best practice experience between factories the landscape with a view to fully harnessing the wind. The target for and business units. The goal is to achieve world-class production and Vestas’ development activities is to have the lowest Cost of Energy procurement functions, and the potential for improvement remains measured as the price per MWh. substantial. In recognition of the continuing development, at the beginning of In close cooperation with each supplier, Vestas identifies central 2011, Vestas was awarded The Zayed Future Energy Prize ahead specifications that are crucial for product reliability and performance. of 391 contenders from 69 countries. The jury, headed by former These parameters are monitored in an ongoing process with a view to Nobel Prize laureate Dr. R. K. Pachauri of India, selected Vestas for the launching improvement initiatives. company’s innovation, leadership and long-term vision in the field of renewable energy and sustainability. At the end of 2011, more than 1,100 employees had participated in improvement initiatives concerning Lean and Six Sigma. The extension of the blade technology centre on the Isle of Wight, UK, was completed in the autumn of 2011. The extension allows Vestas

024 Vestas annual report 2011 · Management report to continue the development of its new V164-7.0 MW turbine with as rail or river barges. In this way, Vestas reduces its CO2 emissions, in-house tests of the 80-metre blades for the turbine. The facility is limits traffic nuisances and reduces costs. In 2011, Vestas increased designed to test blades of up to 100 metres. its direct CO2 emissions by 3 per cent, whilst the indirect CO2 emissions rose by 36 per cent, as it was not possible to buy renewable At the same time, Vestas initiated the extension of the existing test electricity in sufficient volumes in China and in parts of the USA and centre at the Port of Aarhus in Denmark. The test centre is extended India in 2011. from 5,500 to 7,800 m2, and the 18 mega newton test bench will be among the world’s biggest when the centre is completed in August Vestas has defined a target for 2015 that the wind turbine, through- 2012. Also in 2012, Vestas will inaugurate another R&D centre with out its lifetime – production, installation and dismantling – must be at test facilities in Marlborough, Massachusetts, USA. least 15 per cent more CO2 efficient than it is today. Vestas currently

contributes about 5 per cent of the total CO2 emissions for a V112- Technology R&D Center China cooperates with reputable universities 3.0 MW turbine. 5-10 per cent is emitted during transport in connec- and Chinese power companies. In 2011, Vestas completed a col- tion with construction, dismantling and recycling of the turbine, whilst laboration project with China’ power grid operator, China State Grid. the remaining volume of CO2 derives from suppliers of material and Approved by Chinese Department of Energy, the project resulted in a components. Vestas thus only accounts for a limited share of the tur- specific proposal for how China could solve the bottleneck problems bine’s environmental impact. Accordingly Vestas aims to select suppli- arising in relation to the connection of the large number of recently ers who are keen to reduce their CO2 emissions. installed wind turbines to China’s power grid. Activities during the life cycle of a wind power plant1) Combined with the centres in Denmark, the UK, India, Singapore and Energy CO2 the USA, the new R&D centre in Beijing, China, enables Vestas to consumption2) emission3) attract skilled and dedicated employees in all principal markets. Raw materials, resources and suppliers (%) 80-90 85-95 In 2011, Vestas opened a new generator factory in Travemünde, Vestas production (%) 5-10 5 Germany. Unfortunately, the commissioning of the factory did not pro- Transport and installation (%) 5-10 5-10 gress as planned, resulting in a profit warning on 30 October 2011. Recycling (%) (20)-(30) (25)-(35) The problems are under control and are not expected to adversely affect Vestas’ operations in 2012. 1) Calculated for V112-3.0 MW. The large share of renewable energy used in Vestas’

production is reflected in the relatively lower CO2 emission in relation to the energy Environment consumption. As the world’s leading supplier of wind turbines, Vestas is by default 2) Energy consumption and savings (by recycling), respectively. perceived as a sustainable and environmentally friendly high-tech busi- 3) Emission of CO2 and CO2 equivalents and savings (by recycling), respectively. ness. However, Vestas also operates in an industry consuming large volumes of steel and concrete and energy-intensive global logistics. A Life cycle assessment modern wind turbine thus weighs more than 350 tonnes, and it takes For more than ten years, Vestas has systematically applied life cycle more than ten lorries plus pilot cars to transport the turbine to the site. assessments to identify the environmental footprint of the wind tur- To this should be added the foundation, cement mixers, cranes, trains, bines throughout their lifetime, from the extraction of raw materials ships, etc. Vestas therefore has a special obligation to minimise its en- and processing to manufacture, transport and dismantling of the tur- vironmental impact and act in harmony with its surroundings. Sustain- bines. The assessments identify, evaluate and focus on the potential able behaviour is a prerequisite for Vestas’ continued development. environmental improvements. Over a turbine’s lifetime, it only emits

5-10 grams of CO2 per kWh produced, including the energy-intensive As green as it gets production of steel, which represents the biggest single raw material

Wind turbines generate power without emitting CO2, NOX and SOX and used in a wind turbine. without consuming any water. In 2008, Vestas resolved to scale up its environmental efforts. Under the “As green as it gets” principle, Vestas The relationship between consumption of materials for manufacturing undertook to make its wind turbine production as green as possible. a wind turbine and the energy subsequently generated by the turbine This will help lift its competitive strength, not least because it will lead is pivotal for the environmental impact. Vestas’ large-scale invest- to long-term cost reductions. ments in research and development must lead to more “MWh per kilogram turbine” in order to reduce Vestas’ impact on the environment, A consistent weight reduction of Vestas’ wind turbines and relatively the climate, Earth’s resources and its surroundings in general. lower energy consumption are paramount for the development of Vestas’ sustainability. Recycling in Vestas’ production and recycling of A V112-3.0 MW turbine is energy-neutral after approx eight months components in decommissioned wind turbines is another aspect. To- of operation. This means that, after eight months, the turbine has gen- day, 80 per cent of a V112-3.0 MW turbine can be recycled; the target erated as much energy as the suppliers and Vestas spend on manu- for 2015 is 85 per cent. facturing, transporting, installing and dismantling the turbine after 20 years. After this period and during its remaining lifetime, a V112-3.0

An example of these endeavours is Vestas’ collaboration with US MW turbine causes 200,000 tonnes fewer CO2 emissions compared company Caterpillar, initiated in 2011. In addition to being the world’s with average, coal-fired electricity production. To the CO2 and H2O sav- largest supplier of construction equipment, Caterpillar has expertise ings should be added reduced emissions of NOX, SOX and other harm- in renovating and recycling engines, valves, pumps, sensors and simi- ful substances. lar components. Over the next ten years, Caterpillar and Vestas will be renovating wind turbine components, resulting in cheaper turbine One particular step which may reduce the environmental impact from maintenance to the benefit of Vestas’ customers and the environment. the turbines is the recycling of the SF6 gas, which the power supply industry uses to safeguard against fire and electrical discharges in

Where possible, the transportation of ever-larger towers, blades and the turbine’s high-voltage system. One kilogram of SF6 has the same nacelles is moved from roads to alternative means of transport such greenhouse effect as 22,800 kilograms of CO2. One Vestas wind

Management report · Vestas annual report 2011 025 turbine contains about 7 kilograms SF6, on average. If this amount is An important step in the efforts to reduce Vestas’ environmental emitted to the atmosphere, it would correspond to 10 per cent of the footprint is to make the Group’s buildings as energy-efficient as pos-

CO2 emitted in connection with manufacture, transport and disman- sible. Vestas assesses its buildings using the LEED standard, which tling of a turbine during its total lifetime. With a unique return system is the highest standard in sustainable construction. LEED specifies in place, Vestas has ensured that SF6 is recycled or destroyed in a requirements for factors such as insulation, light, sound, energy types, prudent manner. The aim is to completely phase out the use of SF6 in rain water catchment and water recycling. In 2011, the development the long term. centres on the Isle of Wight, UK, and at Lem, Denmark, were extended according to the requirements of the new green building policy. The Renewable energy in production same applied to the offices in Singapore and Portland, USA, and the The use of renewable energy combined with lower energy consump- new corporate headquarters in Aarhus, Denmark. tion and relatively lighter turbines is the most effective way of reducing Vestas’ climate impact. The new headquarters in Aarhus were inaugurated on 9 November 2011 and are heated using one of Denmark’s largest geothermal Vestas’ has defined a goal that all electricity must come from renew- heating plants. Compared with traditional buildings of the same size, able energy sources, subject to availability. For 2011, the goal was this contributes to significantly lower CO2 emissions. The environ- for 40 per cent of Vestas’ energy consumption to be green, whilst the ment-friendly buildings are more expensive to build than standard share of renewable electricity should be at least 95 per cent. The goal construction, but they will help Vestas save expenses for increasingly was not reached because it was not possible to buy renewable elec- expensive water, heat and electricity. tricity in sufficient volumes in China and in parts of the USA and India in 2011. Vestas therefore invested in wind power plants in Eastern Water consumption Europe, some of which, however, are not expected to be fully commis- Vestas uses water in its production process, especially cooling water sioned until in 2012. at the foundries. In 2011, water consumption decreased by 6 per cent from 598,258 m3 to 562,308 m3. Vestas’ factory at Kristiansand, Vestas’ share of renewable electricity fell to 68 per cent in 2011 from Norway, reduced its consumption of municipal water supply. Further- 74 per cent in 2010. more, factory closures in 2011 contributed to the decrease in water consumption. Energy consumption In 2011, Vestas’ total energy consumption rose by 1 per cent. When Waste disposal index-linked to produced and shipped MW, Vestas’ energy consump- The volume of waste, including hazardous waste and the volume of tion decreased as the utilisation of the production facilities rose. A waste sent to recycling, are key indicators of the efficiency of Vestas’ high capacity utilisation increases energy efficiency. sustainability efforts.

As part of its environment initiatives, Vestas not only pursues a green Vestas endeavours to generate as little waste as possible. In 2011, electricity policy, but has also defined a green car and a green building the total volume of waste was 89,051 tonnes, against 88,663 tonnes policy. in 2010. In 2011, 54 per cent of the total volume of waste was recycled, against 40 per cent the year before. The volume of waste should

Energy consumption (MWh) and share of green energy index Direct and indirect emission of CO2 (tonnes) Index

600,000 578,063 585,560 200 100,000 200

537,165 90,472

500,000 180 180 458,296 80,000

68,458 66,457 400,000 160 160 372,037 58,444 60,000 56,547 52,107 50,532 140 140 300,000 263,611 44,613 41,832 241,930 222,694 40,000 32,798 120 200,000 172,800 120 139,983 20,000 100,000 100 100

0 80 0 80 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Energy consumption Share of green energy Direct emission of CO Indirect emission of CO 2 2 Energy consumption index-linked in relation to MW produced and shipped. Emission of CO2 index-linked in relation to MW produced and shipped.

026 Vestas annual report 2011 · Management report be viewed relative to the production and shipments of 5,054 MW in regularly emphasised at Vestas. Risk management and the internal 2011 against 4,057 MW in 2010. The increase in total volumes of control environment are developed and enhanced in an ongoing pro- waste for recycling was primarily due to the recycling of a proportion cess in order to consistently accommodating the needs of a company of the casting sand for bricks at Vestas’ foundry in China. To this should operating internationally and in many markets. be added increased production and the resulting iron scrap at Vestas’ tower factory in the USA. Vestas’ risk management, including internal controls in relation to the financial reporting process, is designed with a view to effectively mini- The use of suppliers affects the volumes that Vestas controls itself. In mising the risk of errors and omissions. addition, the infrastructure for recycling of Vestas’ waste, which consists primarily of sand, metals, wood, paper, oil, plastic and compos- The Executive Management is responsible for continuously identify- ites, has not been developed to the same level in all countries in which ing, assessing and addressing risks with a view to reducing the finan- Vestas operates. cial impact and/or probability of the risks materialising.

Measured in tonnes, half of Vestas’ waste is sand from the casting Vestas’ risk committee works actively with anchoring risk manage- processes. The casting sand is recycled, and that reduces the volume ment throughout the organisation, including ensuring systematic of waste as 80-90 per cent of the casting sand is being recycled on identification and management of all relevant risks. site before the rest is disposed of as waste. The initiative reduces raw materials consumption, the total waste volume as well as transport Enterprise Risk Management is integrated in all business units to costs. ensure systematic identification and handling of all relevant risks throughout Vestas’ value chain. Environment management system Vestas has systematically worked with environment and health & The increasingly standardised approach to risk management meant safety standards since 2000, when Vestas received its first ISO that a decline of 9 per cent in insurance premiums was achieved in 14001 certification. At the end of 2011, 96 per cent of Vestas’ 2011, whilst Vestas achieved significantly improved coverage and employees worked at a facility certified to the ISO 14001 standard. insurance conditions. As a consequence of Vestas’ focus on security, the industrial injury insurance for 2012 was reduced by 13 per cent. Vestas did not experience any environmental accidents in 2011. Operational risks Risk management Vestas is working continuously to improve its operations and to mini- Commercial risks mise risks that may disrupt operations. The overall responsibility for the Group’s risk management and internal control environment in relation to operational and financial risks Suppliers rests with Vestas’ Board of Directors and Executive Management, Vestas continuously extends collaborations with its suppliers. The product development process has been improved to ensure integrated The Board of Directors’, the audit committee’s and the Executive Man- product development in liaison with customer, sales and production agement’s position on good risk management and internal controls is units as well as suppliers. By involving relevant stakeholders early in

Waste disposal (tonnes) and share of hazardous waste index Waste disposal (tonnes)

100,000 96,632 97,471 130 100,000 96,632 97,471

89,643 88,663 89,051 89,643 88,663 89,051

80,000 120 80,000

60,000 110 60,000

40,000 100 40,000

20,000 90 20,000

6,707 6,627 4,118 4,270 4,130

0 80 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Waste disposal Share of hazardous waste Recycling Incineration Landﬁll

Waste disposal index-linked in relation to MW produced and shipped.

Management report · Vestas annual report 2011 027 the process, Vestas is able to strengthen the entire value chain from a aspects of its products and services for the purpose of safeguarding quality, value and risk perspectives. Vestas’ high quality and reliability ranking.

Vestas thus intends to implement Key Supplier Management with the Throughout the value chain, focus areas have been addressed using aim of expanding and accelerating collaborations with key component targets, performance indicators and actions plans for product devel- suppliers. The implementation of Key Supplier Management across all opment, supplier quality levels, production processes and connected procurement functions will consolidate best practices to the benefit quality cycles that capture quality problems through field results. of customers, suppliers and Vestas. In 2012, Vestas will continue its efforts to reduce lead times and total costs. In 2011, Vestas addressed improvements of its product development quality by incorporating a preventive quality, testing and validation Management teams with extensive experience with certain compo- strategy in its development processes. nents are responsible for strategies and execution within their specific product areas. This enables Vestas to better manage critical risks in Supplier quality risks are addressed by evaluating the quality maturity relation to component procurement. Limitations at suppliers have of suppliers and by developing supplier-customer partnerships, within been resolved through gradual replacement of materials used in key the organisation as well as externally. turbine components and through continuing competence-building and risk management procedures at the suppliers. In addition, Vestas As part of its quality improvement initiatives, in 2011, Vestas sharp- regularly follows up on the financial standing of existing and potential ened its focus on enhancing the production process and control right suppliers. from the factories and back upstream to suppliers and sub-suppliers.

The slowdown in market growth has generally triggered component Vestas also stepped up its ongoing improvement activities through abundance and represents a financial challenge to a number of sup- closer cooperation between sites and all Vestas units, resulting in an pliers. Vestas aims to always have at least two suppliers of all compo- improved quality culture, lower warranty costs and an all-time low Lost nents; in the majority of cases, this goal is currently accomplished. Production Factor. These activities will continue in 2012.

A wind turbine consists of several thousands of components manufac- Sales tured by many sub-suppliers. In connection with the reorganisation in To ensure continued commercial success, Vestas constantly focuses 2012, Vestas has established two new functions: Global Sourcing and on customer needs. In 2011, Vestas fully implemented its Key Global Supply Chain and Planning to strengthen collaborations with Account Management programme, and experience from the pro- and handling of its approx 1,000 business partners. gramme will now be transferred onto its other key customers. At the same time, a customer integration programme was launched with the Vestas screens all key suppliers to assess whether they meet the aim of bringing Vestas even closer to its customers and ensuring that requirements for sustainability, human rights and rules for workers. the company can provide tailored quotations and services to the dif- In 2011, 140 suppliers in 26 countries were assessed, and 90 were ferent customer segments in the market. approved. These initiatives form part of the ongoing effort to maintain a local Suppliers and customers must meet Vestas’ safety rules, for example presence in Vestas’ principal markets – “In the region, for the region”. in connection with the installation of turbines. Production Products In recent years, Vestas has worked intensively on reducing risks and As part of its product development efforts, in 2011 Vestas continued waste in production through its Lean and Six Sigma programmes. In to improve its products and processes. In connection with the reorgan- 2011, these efforts focused on optimising and advancing the make- isation announced on 12 January 2012, Vestas introduced two new to-order concept in order to reduce tied-up capital and thereby release business units: Turbines R&D and Global Solutions and Services. cash resources. This has resulted in improved integration of the flow from suppliers to production and through to the installation of the All product platforms are now divided into separate units with built- wind power plants. in quality functions and a more distinct management structure. To facilitate the efforts, Vestas’ R&D department has physically matched Moreover, continuing efforts to harmonise processes ensure an effi- skills and resources for each project. The new product development cient “start-to-finish” supply chain. This structure is the foundation for framework is in place, and a comprehensive training programme has a complete integration of Enterprise Resource Planning and Business been launched to ensure successful implementation throughout the Intelligence systems, which will improve information to management, value chain. The intention is to extend the concept in 2012 to cover all thereby reducing the risk of unilateral decisions. parts of the value chain. Based on these initiatives and the former alignment process, Vestas Product quality has built the foundation for consolidating the function areas across Quality and reliability are key competitive parameters for Vestas, and the production units, reducing overhead costs. Finally, the streamlining data reliability in all Vestas processes is a precondition for continuous has sharpened the focus on the rate of utilisation of Vestas’ factories quality improvements. The implementation of SAP helps ensure swift and the possibility of optimising the future production layout. and uniform reporting across the units, facilitating effective management at all levels. Transport Vestas collaborates regularly with selected transport suppliers, Vestas’ Risk Management programme ensures that quarterly reviews globally as well as regionally. In 2011, special attention was paid to of relevant risk assessments are carried out in accordance with the improving global transport processes and the relevant IT solutions company’s risk management process, including quality risks. and to limiting potential damages in critical areas. Efforts are under- way to achieve a higher degree of harmonisation across all business In 2011, Vestas developed a quality strategy that addresses all units.

028 Vestas annual report 2011 · Management report In the autumn of 2011, Vestas successfully carried out a test rail The presence of local Government Relations departments in its sales transport of a V112 blade from Lauchhammer in Germany to Lem in units has provided Vestas with improved conditions and understand- Denmark. Vestas intends to increase its use of rail transportation in ing of wind power in a number of markets. The lobbyists advise the Europe as this type of transport has already proven to be a good solu- authorities in connection with drawing up the legislation required to tion in the USA. In addition to financial cost reductions, rail transport further proliferate wind power. Vestas has also stepped up its focus on will also reduce CO2 emissions. markets extensively using subsidy schemes. In this context, reference is made to the debates on future tax credit schemes in the USA and Social responsibility the 2020 climate targets in the EU. The work to prevent industrial injuries is always at the top of Vestas’ agenda. Socially and politically unacceptable behaviour could also Reputation cause comprehensive damage to Vestas’ reputation and, by extension, A strong reputation leads to greater loyalty, more recommendations, to its growth and earnings. Minimum emissions and climate impact easier recruitment and ultimately higher sales and earnings. Conse- and anti-corruption are also important focus areas, which is under- quently, a good reputation is of major strategic importance to Vestas, pinned by a number of initiatives: in particular, and to the wind power industry in general.

··Development and implementation of a global supplier evaluation Annual measurements of the quality and strength of Vestas’ reputa- tool for production units, comprising the environment, health & tion among its principal stakeholders are made to ensure that Vestas safety, human rights and anti-corruption. develops its position in the right direction and builds goodwill in soci- ··All new employees must attend Code of Conduct e-learning as part ety in general. of their introduction to Vestas. Selected employees attend special e-learning modules on business ethics. Since Vestas started systematically to measure its reputation in 2009 ··Signing of the World Economic Forum’s partnership against pursuant to the Global Rep Track™, the indicator has improved to 79 corruption to further underline the zero-tolerance policy for bribery. in 2011 from 77 in 2010 and 75 in 2009 among Vestas’ customers. ··EthicsLine comprises reports and questions from employees and Among Vestas’ other commercial stakeholders such as bankers, advi- Vestas’ business partners. sors and potential customers the tendency has been the same with a score of 79 in 2011 compared to 77 the year before. Legislation Globally and locally, Vestas’ dedicated efforts have improved the legis- As a consequence of two profit warnings within the last five months, lative stability that is a prerequisite for wind power to continue to grow the analysts’ evaluation of Vestas did, however, result in a lower score and conquer market shares from other sources of energy. than last year – the analysts’ trust thus fell to 41 in 2011 from 54 in 2010. The survey of Vestas’ reputation takes place once a year. The The financial and economic crisis has added substantial pressure on a next survey will be conducted in January 2013. number of heavily indebted European countries, which are facing considerable demands for conducting a tight fiscal policy. Although only Financial risks and internal control environment very few subsidy schemes for wind power represent a public expendi- Financial risks ture, but are financed by the power consumers, short-term considera- Based on Vestas’ risk management policy, Finance prepares a descrip- tions may have an adverse impact on the expansion of renewable tion of the key risks relating to financial reporting and measures taken energy, including wind power. to control such risks.

A large number of subsidy schemes are being reconsidered. This involves Finance works actively with anchoring risk management throughout a risk of a wait-and-see stance among some of Vestas’ customers. the organisation, including ensuring systematic identification and management of all relevant risks The movement towards protectionism in the cleantech industry increases the risk of a retaliation spiral at a time when the global As part of the risk assessment, Vestas’ Board of Directors and Execu- economic recovery remains weak. In response, Vestas has, among tive Management twice annually assess the risk of fraud and the other things, increased its focus on trade barriers, communicating its measures to be taken to reduce and/or eliminate such risks, including viewpoints in international trade organisations such as the EU and the assessing any possibility of the general management overriding con- WTO. Protectionism will make cleantech solutions more expensive, trols and affecting the financial reporting. defer the necessary climate measures and thereby increase the overall costs associated with climate change for everyone. Control activities Finance is responsible for the implementation and monitoring of Vestas supports the EU’s efforts to advance renewable energy, not Vestas’ global financial processes. This helps to ensure a uniform merely because it helps combat climate change and reduces reliance design and structure of the Group’s internal controls. The objective on imported energy, but because it provides economic stimuli at a time of the Group’s control activities is to ensure compliance with the of crisis. Vestas believes that economic growth and the advancement targets, policies, manuals, procedures, etc. defined by the Executive of renewable energy are two sides of the same coin, provided the nec- Management. Furthermore, the activities must help ensure that any essary political framework is in place. errors, deviations and shortcomings are prevented, discovered and rectified. A stable financial and legislative framework is a prerequisite for giving investors the trust necessary to safeguard the long-term development Vestas continuously adjusts and implements global financial proof the wind turbine industry. To achieve this framework, it is paramount cesses and controls for all units and functions aimed at further miti- that existing EU legislation, not least the combined Climate and gating the risk of incorrect reporting. Energy package and the resulting national actions plans for renewable energy are implemented. Other priorities include an upgrade of mem- Information and communication ber state power grids with unambiguous targets and time schedules Vestas’ internal rules, adopted by the Board of Directors, lay down, beyond 2020. among other things, overall requirements on financial reporting and

Management report · Vestas annual report 2011 029 external financial reporting in accordance with current legislation and The use of financial instruments involves a risk that the counterparty applicable regulations. may not be able to meet his obligations at maturity. Vestas minimises this risk by only using financial institutions with high credit ratings. The information systems are designed to identify, collect and commu- The banks must have a long-term credit rating from Standard & Poor’s nicate relevant information, reports, etc. on an ongoing basis and on all (A), Moody’s (A2) or Fitch (A). However, the financial crisis has down- levels to facilitate an effective, reliable workflow and the performance graded two members of the Vestas banking group and as such, not of controls. This is done with due consideration to the confidentiality all of them are complying with the desired rating. Vestas has decided required in a listed company. to retain the cooperation, but is monitoring the development of the banks closely and will act accordingly. Finally, Vestas has in-house lim- Other financial risks its as to the size of the Group’s balance with a single bank. Currency The business activities of Vestas involve exchange rate risks linked Commodity risks to the purchase and sale of goods and services outside the euro zone. To minimise the potential impact and reduce risks in connection Vestas pursues a policy of hedging exchange rate risks as soon as a with fluctuations in prices of commodities such as copper and nickel, commitment in foreign currency is agreed. However, this applies only Vestas has entered into long-term agreements with fixed prices cover- to net exposure in each individual currency. Exchange rate risks are ing parts of Vestas’ needs. In general, however, Vestas seeks to incor- primarily hedged through foreign exchange forward contracts. porate commodity price developments into its sales contracts. The final project price typically depends on developments in a number of Exchange rate adjustment of investments in subsidiaries and associ- key parameters, especially commodity prices. Where a customer seeks ated companies abroad is taken directly to equity. Vestas believes that full certainty for the final project price, this is reflected in a premium. continuous exchange rate hedging of such long-term investments is This means that Vestas’ earnings on contracts is relatively robust to- not a favourable solution with regard to balancing total risk against wards fluctuating input prices. total cost. An increase in the price of steel, in particular, may, however, have an In combination with a higher degree of sourcing from countries whose adverse impact on project earnings. currencies are not linked to the EUR, the investments in the USA and China ensure an improved currency mix between income and Demand for and prices of so-called earth metals have surged. Earth expenses, making Vestas less sensitive to fluctuations in currencies metals are widely used for example in certain direct drive turbines. such as the USD relative to EUR. This is one of the reasons why Vestas does not have a direct drive turbine in its product range but exclusively uses turbines with conven- Interest rate and liquidity risks tional gear boxes. Vestas uses limited amounts of earth metals in its Vestas’ Treasury department is in charge of ensuring that substantial modern generators with permanent magnets and seeks to reduce its capital resources are in place at all times through a combination of dependence on materials that are costly and hard to access. liquidity management, non-committed and committed credit facilities and other debt instruments. Vestas manages its liquidity risk through Events after the balance sheet date cash pool systems in various currencies and by using short-term over- Preliminary financial highlights draft facilities in a number of financial institutions. On 3 January 2012, Vestas disclosed, based on preliminary accounting figures, that it expected an order intake of 7.4 GW for Vestas’ primary interest rate risk consists of interest rate fluctuations, 2011, revenue of approx EUR 6bn, an EBIT margin of approx 0 per which may influence the Group’s debt and lease obligations. Managing cent and a positive free cash flow, ref. company announcement the interest risks involves the monitoring of duration and maximum in- No. 1/2012. terest rate risk on Vestas’ net debts. Vestas uses hedging instruments to limit interest rate risks. Organisational changes On 12 January 2012, Vestas disclosed a new organisational struc- Vestas’ ambition is to have a net interest-bearing debt/EBITDA which ture aimed at increasing customer focus and earnings and reducing does not exceed 2:1 at the end of each financial year. The company costs by more than EUR 150m by the end of 2012, ref. company aims to maintain a robust balance sheet and to ensure a clear invest- announcement No. 3/2012. ment grade profile. Orders Tax risks In 2012, Vestas has announced two orders for Finland and China, Vestas pursues an active, but not an aggressive, tax policy. Based on respectively, with a total capacity of 79 MW. its broad, international production and sales platforms, Vestas main- tains a well-documented transfer pricing system that gives a true and A complete overview of announced orders is available at Vestas’ fair view, ref. international rules based on the OECD guidelines and website. Vestas only announces firm and unconditional orders and local legislation. However, transfer pricing may always be challenged in relation to company announcements, the order value must exceed due to the interpretation of international guidelines adopted by local EUR 66m. authorities. Major shareholder announcement Credit risks In February 2012, Vestas received information from Capital Research The financial crisis has sharpened Vestas’ focus on customers’ ability and Management Company, USA, that they had reduced their holding to pay. In addition, Vestas is exposed to credit risks in connection with of Vestas shares to 10,143,805 shares (4.98 per cent), ref. company delivering products to customers in certain countries. Developments announcement No. 5/2012. in the customer portfolio towards a greater proportion of large, international enterprises will to some extent reduce this risk. In general, Change in the Executive Management of Vestas Vestas aims to hedge receivables by payment guarantees. At 31 De- The Board of Directors of Vestas Wind Systems A/S has received a cember 2011, Vestas’ due receivables amounted to EUR 105m. thorough briefing on the conditions which during the last months have

030 Vestas annual report 2011 · Management report led to profit warnings. As a consequence of this, CFO and Deputy CEO, Henrik Nørremark resigns, ref. company announcement No. 6/2012.

Election of members to the Board of Directors of Vestas Wind Systems A/S At Vestas Wind Systems A/S’ board meeting discussing the annual report for 2011, the chairmanship, Bent Erik Carlsen and Torsten Erik Rasmussen, informed the Board that they will not stand for re-election for the Board of Directors at the Annual General Meeting on 29 March 2012.

Furthermore, board member, Freddy Frandsen, informed the Board that he will not stand for re-election.

The remaining board members elected by the annual general meeting have all informed the Board that they will stand for re-election, ref. company announcement No. 7/2012.

Management report · Vestas annual report 2011 031 Accounting policies for Electricity, gas and district heating are measured on the basis of quan- non-financial highlights tities consumed according to direct meter readings per site including Vestas will base its materiality assessment on analysis of significant related administration. Consumption of electricity comprises electric- economic, environmental and social impacts of the company’s activi- ity purchased externally and consumption of production from own ties. For 2011, the analysis is based on internal priorities as well as wind turbines. Oil for heating is stated on the basis of external pur- experience from dialogue with customers, investors, policy makers, chases adjusted for inventories at the beginning and at the end of the employees and media. For 2012 ,Vestas will involve stakeholders period. Fuel for transport has been recognised on the basis of supplier directly in the materiality assessment. The result of the first analysis statements. Electricity from renewable energy sources is calculated is incorporated in Vestas’ annual report with additional information at on the basis of supplier statements. vestas.com. Vestas has previously selected a number of non-financial key figures and indicators that are relevant for the understanding of Renewable energy is energy generated from natural resources, which Vestas’ development, results and financial position. These key figures are all naturally replenished – such as wind, sunlight, water and geo- have been maintained after this first materiality assessment except thermal heat. Nuclear power is not considered to be renewable energy. water quality that is no longer considered material. The status of the Consumption of electricity from non-renewable sources purchased as a key figures is monitored closely and for relevant key indicators spe- result of not being able to purchase renewable electricity at some loca- cific targets have been defined. tions, is in the Group statement balanced with renewable electricity produced by wind power plants owned by Vestas and sold to the local grid. All Vestas’ wholly owned companies are covered by the report. Newly The consumption of water is stated as measured consumption of fresh established companies are included from the time of production start water. Cooling water from streams, rivers, lakes, etc. that is solely used and for acquired companies from the time when coming under Vestas’ for cooling and released to the stream after use without further con- operational control. Companies are excluded from the reporting from tamination than a higher temperature, is not included. the time when the company leaves Vestas’ operational control. The same measurement and calculation methods are applied at all Vestas Waste and emissions sites. No information provided in earlier reports has been re-stated. Waste is stated on the basis of weight slips received from the waste There have been no significant changes from previous reporting periods recipients for deliveries effected in the accounting period, apart from in the scope, boundary, or measurement methods applied in the report. a few types of waste and non-significant volumes which are estimated on the basis of subscription arrangement and load. Waste disposal is Safety and health based on supplier statements. Occupational health & safety is measured for all activities under the organisational structure. Industrial injuries of all employees are stated Direct emission of CO2 is calculated on the basis of determined on the basis of registration of incidents that have caused more than amounts of fuel for own transport and the direct consumption of oil one day’s absence. and gas, with the usage of standard factors published by the Danish

Energy Authority. Indirect emission of CO2 is calculated on the basis of From 2009, injuries and working hours for external supervised em- direct consumption of electricity and district heating, with the usage ployees are also included. The incidence of injuries is defined as the of national grid emissions factors published by International Energy number of injuries with at least one work day of absence after the day Agency. Indirect CO2 emissions from electricity consumption based of the injury per one million working hours. The number of working on non-renewable sources is balanced out by CO2 emission savings hours is measured on the basis of daily time cards registered in the caused by production and sale to the grid from Vestas owned turbines. payroll system for hourly-paid employees and prescribed working hours for salaried employees. For external supervised employees, the MW produced and shipped injuries are reported by Vestas, and working hours are reported by the Produced and shipped MW is stated as the accumulated effect of wind external suppliers. turbines that were produced and shipped to the customers in the accounting period. Absence due to illness is defined as hours absent due to illness, exclusive of absence caused by industrial injuries, maternity leave CO2 savings from the produced and shipped MW and child’s first day of illness. Absence due to illness is measured by CO2 savings are calculated on the basis of a capacity factor of 30 per means of registrations in the payroll system based on daily time cards cent of the produced and shipped MW, an expected lifetime of 20 years (hourly-paid employees) and absence records (salaried employees), of the produced and shipped MW, and the latest updated standard fac- respectively. tor from the International Energy Agency of average CO2 emission for

electricity in the world, at present 502 grams of CO2 per kWh. Management systems Percentages of Vestas certified according to ISO 9001, ISO 14001 Breaches of internal control conditions and OHSAS 18001, respectively, is stated on the basis of the number Breaches of internal inspection conditions are stated as the conditions of employees in the certified departments. for which measurements are required, and where measurements show breaches of stated conditions. Consumption of resources Metals and other raw materials are stated on the basis of consumption Environmental accidents from inventories to manufacturing in the first phase of production and Accidental release of substance and chemicals that Vestas considers to servicing of wind turbines, respectively, as recorded in the com- to have an irreversible impact on the environment. pany’s ordinary registration systems. Metals include only the amount of metal that is processed at Vestas. Employees and diversity The number of employees is calculated as the number of employees Consumables are stated on the basis of decentralised lists of quanti- who have a direct contract with Vestas and permanent staff employed ties delivered per site in the financial year. Relevance has mainly been through third parties. Employee information is determined on the determined on the basis of Vestas’ sector assessment of material basis of extracts from the company’s ordinary registration systems environmental impacts, followed by a selection in relation to quanti- with specification of nationality, sex and IPE level (Mercers Interna- ties consumed compared with the activities carried out at the sites. tional Position Evaluation).

032 Vestas annual report 2011 · Management report The independent auditor’s statement concerning preparation of reporting on non-financial highlights. Furthermore, we non-financial highlights for 2011 have planned and performed our work to obtain limited assurance that We have made an assessment of Vestas Wind Systems A/S’ non- the reporting for 2011 is in accordance with the GRI G3.0 guidelines, financial key figures and indicators for 2011, stated on page 7, in the hereunder whether it contains the required information regarding the annual report for 2011. company’s profile and management approach and as a minimum 20 performance indicators with at least one indicator from each sector Criteria for the preparation of reporting on non-financial issues of indicators with respect to economics, environmental issues, human Page 32 of the annual report for 2011 includes the management’s rights, work conditions, society and product responsibility. responsibility for choice of the non-financial highlights relevant for integration in the annual report page 7. The non-financial key figures Based on an assessment of materiality and risk, our work has com- and indicators have been included in the annual report for 2011 prised accounting technical analyses, inquiries and spot-checks of according to the accounting policies for non-financial highlights for systems, data and underlying documentation, including test that the the Group applied and described on page 32. guidelines for measurement and statement of non-financial highlights have been followed. We have assessed the expediency of the internal Furthermore, the index including Vestas Wind Systems A/S’ self- recording and reporting system as basis for consistent recording and evaluation on the company’s website (vestas.com) discloses the reporting on the non-financial environmental and occupational health management’s choice of reporting indicators in accordance with the & safety data. We have reviewed the GRI G3.0 indicators listed on the GRI G3.0 (Global Reporting Initiative) guidelines for sustainability company’s website, at random tested data and information to underly- reporting at an application level B. ing documentation and evaluated if indicators are reported upon in accordance with the GRI G3.0 guidelines. The preparation of the reporting on GRI G3.0 indicators, of non-financial issues and of non-financial highlights is the responsibility of the Opinion company’s management. Our responsibility is to express an opinion on In our opinion, the non-financial key figures and indicators included on the reporting on non-financial key figures and indicators based on our page 7 of the annual report for 2011 have been stated in accordance assessment, and to express an opinion on the application of GRI G3.0 with the criteria mentioned. indicators at a B-level. Nothing has come to our attention causing us not to believe that the Basis of opinion GRI G3.0 indicators listed on the company’s website have been stated Our work has been planned and performed in accordance with the and disclosed in accordance with the GRI G3.0 guidelines at an appli- International Standard on Assurance Engagements, ISAE 3000 (other cation level B+. We are thus able to state that nothing has come to our assurance than audit or review of historical, financial information) to attention causing us to believe that Vestas Wind Systems A/S has not obtain reasonable assurance that the non-financial highlights stated reported in a reasonable and balanced manner. on page 7 have been computed in accordance with the criteria for the

Copenhagen, 8 February 2012

PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab

Lars Holtug Birgitte Mogensen State Authorised State Authorised Public Accountant Public Accountant

Management report · Vestas annual report 2011 033

Corporate Governance

036 Communication strategy 036 Management structure 040 Remuneration 041 Code of Conduct 042 Statutory report on corporate governance 044 Competencies and fiduciary positions of the members of the Board of Directors 049 Fiduciary positions of the members of the Executive Management Corporate governance

The Board of Directors and the Executive Management of Vestas Wind “Closed periods” Systems A/S believe that corporate governance initiatives should be a During a four-week period ahead of the disclosure of financial reports, constant process and address the principles of corporate governance communication with Vestas’ stakeholders is subject to restrictions. in an ongoing process with due consideration to current legislation, During these “closed periods”, no comments are made on the financial practices and recommendations. results, forecasts or market outlook.

Such evaluation includes a review of the company’s business concept, Management structure business processes, goals, organisation, capital position, stakeholder Vestas Wind Systems A/S is a Danish limited liability company with a relations, risks and exercise of the necessary control. two-tier management system in which the Board of Directors and the Executive Management handle the management of the company’s The Board of Directors finds that clear guidelines on how to manage affairs. No persons hold dual memberships of both the Board of Direc- and communicate at Vestas help to provide a true and fair view of the tors and the Executive Management. The company is also the parent Group to the world. A clear and well-considered management and company of the Vestas Group. communications strategy is of special importance in light of the challenges Vestas is facing in a market characterised by fierce competi- The management of the company and the Group is governed by the tion, expected consolidation and ever-increasing quality requirements. company’s Articles of Association, the Danish Companies Act and other applicable Danish law and regulations. Communications strategy Vestas aims to safeguard the Group’s – and by extension the share- In order to retain and, if possible, extend its position as the leading holders’ – long-term interests. That can only be achieved through a player and pure-play spokesperson for wind power, it is essential that close dialogue and a positive collaboration with all of Vestas’ stake- Vestas becomes more and more effective and customer-oriented. holders. Accordingly, on 9 November 2011, the company announced that a number of organisational changes would be implemented in 2012. In order to ensure that all stakeholders are treated alike, no distinction Additional information about the organisational changes is provided is made between internal and external communication. All communi- in “New organisation”. cation from Vestas must underpin the overall picture of the business, its goals and corporate culture, and all communication must be based Shareholders on what serves Vestas’ best interests. Vestas Wind Systems A/S’ share capital amounts to DKK 203,704,103, and its shares are listed on NASDAQ OMX Copen Communication from Vestas is intended to ensure that information hagen under the ticker symbol VWS. Vestas has one share class and a about and disclosed by Vestas is: timely (relevant from a time perspec- total of 203,704,103 shares, which are 100 per cent free float. tive); adequate (correct, relevant, clear and not misleading); simultane- ous (equal treatment of all stakeholders); open; and easily accessible. Share capital distribution at 31 December 2011 (number of shares)

Information about Vestas which is considered to have a significant Capital, international shareholders 96,342,447 impact on the pricing of Vestas’ shares is disclosed pursuant to Capital, Danish shareholders 92,320,318 applicable Danish legislation for listed companies. An overview of Capital, shareholders not registered by name 15,041,338 announcements disclosed in 2011 is available at vestas.com. Total 203,704,103

Stakeholders wishing to receive such announcements by email may register through Vestas’ news service at vestas.com. Furthermore, it is At the end of the year, the company had 171,880 shareholders possible to receive alerts regarding webcasts and share price informa- registered by name, including custodian banks. The registered share- tion by email. holders held 93 per cent of the company’s share capital. At the end of 2011, approx 167,000 Danish shareholders owned more than 45 per Vestas’ communications strategy is available at vestas.com. cent of Vestas.

Financial calendar 2012 At the end of 2011, BlackRock Inc., USA, and Capital Research and Management Company, USA, both had reported a shareholding that 15 February Deadline for submitting matters for inclusion in exceeded 5 per cent. Both notifications were received in 2010. the agenda for the Annual General Meeting 1 March Convening for the Annual General Meeting In February 2012, Vestas received information from Capital Research 22 March Record date1) and Management Company, USA, that they had reduced their holding 23 March Deadline for requesting admission cards for of Vestas shares to 10,143,805 shares (4.98 per cent). the Annual General Meeting. 29 March Annual General Meeting Vestas seeks to have an international group of shareholders and to 4 April - 1 May Closed period inform everyone openly about the company’s long-term targets, priori- 2 May Disclosure of interim financial report, Q1 2012 ties and initiatives conducted with due consideration to short-term 24 July - 21 August Closed period opportunities and limitations. 22 August Disclosure of interim financial report, H1 2012 General meeting 10 October - 6 November Closed period The general meeting, consisting of the company’s shareholders, is the 7 November Disclosure of interim financial report, Q3 2012 supreme management body of Vestas Wind Systems A/S and is the supreme authority in all company matters, subject to the limits laid 1) The right of a shareholder to attend a general meeting and to vote is determined relative down by Danish legislation and the company’s Articles of Association. to the shares held by the shareholder at the record date. The record date is one week Shareholders may exercise their rights to make decisions in the com- before the general meeting, ref. Article 6(2) of the Articles of Association. pany at the general meeting.

036 Vestas annual report 2011 · Corporate governance The Board of Directors invites all shareholders to exercise their influ- Shareholders ence and asks that all shareholders ensure that their holding of Vestas shares is registered by name in the company’s register of sharehold- Auditor ers. The Board of Directors also recommends that all shareholders express their opinions by voting at the general meetings, either by:

Board of Directors ··attending the meeting; ··voting via the InvestorPortal; ··filling in and returning a proxy/correspondence form; Board Committee Board Committee ··giving proxy to the Board of Directors; or – Nomination & – Manufacturing & ··appointing a third party as proxy. Compensation Excellence Deadlines for proposed resolutions for the General Meeting Any shareholder may in writing to the Board of Directors claim a spe- Board Committee Board Committee cific matter included in the agenda for the general meeting. The claim – Audit – Technology must be submitted not later than six weeks before the date of the general meeting, ref. Article 4(6) of the Articles of Association.

Executive Management In addition to participating in discussions taking place at the general meeting, the company’s shareholders can ask questions to the Board of Directors three months before the meeting via [email protected]. Questions and answers will continually be published on vestas.com. The general meeting is held at least once a year and is convened by no more than five and no less than three weeks’ notice counting from Annual General Meeting 2012 the date before the general meeting, ref. Article 4(4) of Vestas Wind The Annual General Meeting of Vestas Wind Systems A/S will be held Systems A/S’ Articles of Association. The Articles of Association are on 29 March 2012 at 2 p.m. (CET) at the Concert Hall (Musikhuset) in available at vestas.com. Aarhus (Denmark). The convening for the Annual General Meeting will be disclosed on 1 March 2012. All shareholders are entitled, in compliance with a few formal requirements, to have equal access to submit proposals, attend, vote and Distribution of dividends will always be decided with due considera- speak at general meetings, ref. Articles 4 and 6 of the Articles of Asso tion for the Group’s plans for growth and liquidity requirements. The ciation. Board of Directors intends to propose to the company’s Annual Gen- eral Meeting that no dividend be paid in respect of 2011. Unless otherwise provided by the company’s Articles of Association or applicable legislation, resolutions adopted by the shareholders at the Allocation of loss general meeting are passed by a simple majority of votes, ref. Article 7(2) of the Articles of Association. (mEUR) 2011 The Board of Directors proposes the following distribution of Any resolution in respect of an amendment to the Articles of Associa- the amount available: tion, dissolution, demerger and merger, which under Danish law must Transfer to reserve for net revaluation under the equity method 36 be passed by the general meeting, can only be passed by a majority of Dividend 0 not less than two-thirds of all votes cast and of the voting capital rep- Retained earnings (218) resented at the general meeting unless otherwise prescribed by the (182) Danish Companies Act, ref. Article 7(3) of the Articles of Association.

Attendance at general meetings The Board of Directors intends to propose that Article 8(1) of the Shareholders wishing to exercise their influence at the general meet- Articles of Association be amended to the effect that the Board of ing must first register their shares by name in order to subsequently Directors can consist of 5-10 members elected by the General Meet- requesting an admission card and voting papers. Any shareholder who ing, against previously 3-8 members. This proposal is based on a wish is entitled to attend a general meeting must request an admission to further consolidate the competencies of the Board of Directors. card not later than three days before the relevant general meeting is held. The admission card can be ordered via Vestas’ InvestorPortal or Furthermore, the Board of Directors intends to propose that Article by returning the registration form which is available at vestas.com. 10(1) of the Articles of Association be amended to the effect that in the future, the company can be bound by ”the joint signatures of the The right of a shareholder to attend a general meeting and to vote is Managing Director and another member of the Executive Manage- determined relative to the shares held by the shareholder at the record ment” instead of ”the joint signatures of two members of the Executive date. The record date is one week before the general meeting. The Management”. shares held by each shareholder at the record date are calculated on the basis of registration of the shareholder’s ownership in the register In this connection, the following wording for Article 10(1) is proposed: of shareholders and notifications about ownership received by the ”The company shall be bound by (i) the joint signatures of the Manag- company, but which have not yet been registered in the register of ing Director and another member of the Executive Management, (ii) shareholders. the joint signatures of one member of the Executive Management and the Chairman or the Deputy Chairman of the Board of Directors, (iii) the Voting joint signatures of one member of the Executive Management and two Vestas has a single class of shares, and no shares carry any special members of the Board of Directors, or (iv) the joint signatures of all the rights. Each share carries one vote. members of the Board of Directors.”

Corporate governance · Vestas annual report 2011 037 At Vestas Wind Systems A/S’ board meeting discussing the annual In 2011, PricewaterhouseCoopers was appointed as the company’s report for 2011, the chairmanship, Bent Erik Carlsen and Torsten Erik auditor for the 2011 financial year. Rasmussen, informed the Board that they will not stand for re-election for the Board of Directors at the Annual General Meeting on 29 March For the 2011 financial year, PricewaterhouseCoopers received a fee of 2012. EUR 5m, ref. note 31 to the consolidated accounts.

Furthermore, board member, Freddy Frandsen, informed the Board Board of Directors that he will not stand for re-election. Pursuant to the company’s existing Articles of Association, the company is managed by a Board of Directors composed of three to eight The remaining board members elected by the annual general meet- members elected by the general meeting and a number of representa- ing have all informed the Board that they will stand for re-election, ref. tives elected by the employees. company announcement No. 7/2012. The Board of Directors currently consists of 12 members, of which The Board of Directors proposes that PricewaterhouseCoopers Stats eight are elected by the general meeting and four are elected by and autoriseret Revisionspartnerselskab be re-appointed as the com- among the employees. pany’s auditor. The existing Board members elected by the general meeting were The Board of Directors will also propose an authority for the company, elected in 2011 and their election term expires in 2012, as Board in the period until the next annual general meeting, to acquire treasury members elected by the general meeting must retire at the following shares. After such acquisition, Vestas’ combined portfolio of treasury Annual General Meeting. However, such Board members shall be eligi- shares must not exceed 10 per cent of the share capital. ble for re-election, ref. Article 8(1) of the Articles of Association.

The company’s holding of treasury shares Candidates for Vestas’ Board of Directors must not have reached the In 2011, the Board of Directors exercised its authority to acquire age of 70, ref. the Board of Directors’ rules of procedure. treasury shares. Vestas acquired 300,000 shares in March, 200,000 shares in April and 200,000 shares in May at average prices of Board members elected by the general meeting may be recommended DKK 179.10, DKK 199.67 and DKK 154.12, respectively, equal to an for election by the shareholders or by the Board of Directors. When acquisition price totalling EUR 17m. Vestas acquired treasury shares proposing candidates for Board membership, the Board of Directors to cover its option programme for executives, ref. note 32 to the con- strives to ensure that they: solidated accounts. ··are able to act independently of special interests; At the end of 2011, Vestas had a portfolio of treasury shares consist- ··represent a balance between continuity and renewal; ing of 1,455,813 shares, equal to EUR 12m acquired in 2006, 2007, ··match the company’s situation; and 2009 and 2011, respectively. The portfolio corresponds to 0.7 per ··have industry insight and the commercial and financial skills required cent of the share capital. to allow them to perform their tasks in the best possible manner.

Auditor When proposing new board candidates, the Board of Directors pursues Pursuant to Article 11(1) of the Articles of Association, Vestas’ annual the goal of having several nationalities of both sexes. In addition, the report must be audited by one or two audit firms to be appointed by Board of Directors is focused on having a diverse age distribution. the shareholders for the period until the next Annual General Meeting. However, this goal must not compromise the other recruitment criteria.

The members of the Board of Directors’ positions in Vestas Wind Systems A/S Nomination & Manufacturing & Audit Compensation Technology Excellence Board of Directors Committee Committee Committee Committee Bent Erik Carlsen Chairman Chairman Chairman Carsten Bjerg Member Elly Smedegaard Member Freddy Frandsen Member Member Chairman Håkan Eriksson Member Member Jørgen Huno Rasmussen Member Member Jørn Ankær Thomsen Member Member Member Kim Hvid Thomsen Member Member Kurt Anker Nielsen Member Chairman Michael A. Lisbjerg Member Sussie Dvinge Agerbo Member Torsten Erik Rasmussen Deputy Chairman Member Member

Number of meetings in 2011 112) 4 6 4 6

2) In 2011, the Board of Directors held a total of 11 meetings inclusive of a two-day strategy seminar.

038 Vestas annual report 2011 · Corporate governance Pursuant to Danish legislation, a number of company and Group rep- The Board members have a duty to report any share transactions, and resentatives are elected. The existing representatives were elected a list of disclosed insider transactions made during the year is avail- to the Board of Directors in 2008, and their election term runs until able at vestas.com. 2012. A description of the Danish system concerning company and Group representatives is available at vestas.com. Board committees The purpose of Vestas’ Board committees is to prepare decisions and Duties of the Board of Directors recommendations for evaluation and approval by the combined Board The Board of Directors deals with the overall and strategic manage- of Directors. The committees are not authorised to make independent ment of the company, including: decisions; instead they report and make recommendations to the combined Board of Directors. ··appointing the Executive Management; ··laying down guidelines for and exercising control of the work Vestas has established four permanent Board committees. Each of performed by the Executive Management; these consists of a chairman and two members elected for terms ··ensuring responsible organisation of the company’s business; of one year by and among the Board members. The election usually ··defining the company’s business concept and strategy; takes place at the Board meeting held immediately after the general ··ensuring satisfactory bookkeeping and financial reporting; meeting. ··ensuring the necessary procedures for risk management and internal controls; and The committees hold the necessary number of meetings per year. At ··ensuring that an adequate capital contingency programme is in place the request of the committees, other members of management may at all times. also participate in these meetings.

Cooperating with the Executive Management, the Board of Directors Audit Committee establishes and approves overall policies, procedures and controls in key The Audit Committee supports the Board in assessments and controls areas, not least in relation to the financial reporting. This requires a well- relating to auditing, accounting policies, systems of internal controls, defined organisational structure, unambiguous reporting lines, authori- financial reporting, procedures for handling complaints regarding sation and certification procedures and adequate segregation of duties. accounting and auditing and the need for an internal audit function. In 2011, the committee held a total of four meetings, and the three The Board of Directors’ rules of procedure is available at vestas.com. members of the committee participated in all meetings.

Authorities granted to the Board of Directors Each year, Vestas’ Board of Directors and Audit Committee assess Vestas’ Articles of Association include an authority to Vestas’ Board the need for an internal audit function. Vestas believes that there is of Directors concerning an increase of the company’s capital in one or no need for an internal audit function because a number of the as- more issues of new shares up to a nominal value of DKK 20,370,410 signments that would normally be undertaken by internal audit are (20,370,410 shares), ref. Article 3 of the Articles of Association. The handled by an in-house compliance department reporting directly to authority is valid until 1 May 2015. the Audit Committee.

Since the company was established in 1986, every year the Board of The majority of the members of the Audit Committee meet the defi- Directors has been authorised by the shareholders at the annual gen- nition of independence of audit committee members set out in the eral meeting to let the company acquire treasury shares in the period Danish Auditors’ Act. The Chairman also meets the requirements until the next annual general meeting within a total nominal value of under the Auditors’ Act on accounting qualifications. up to 10 per cent of the company’s share capital from time to time, ref. section 198 of the Danish Companies Act. The charter for the Audit Committee is available at vestas.com.

The Board of Directors regularly assesses the company’s capital and Nomination & Compensation Committee share structure, and the Board of Directors finds the present structure The Nomination & Compensation Committee supports the Board in to be appropriate for the shareholders and the company. overall staff-related topics, including assessments of remuneration. In 2011, the committee held a total of six meetings. Assessment of the work performed by the Board of Directors Pursuant to the rules of procedure for the Board of Directors, the Technology Committee Board of Directors must evaluate its work. Once a year, it evaluates the The Technology Committee supports the Board in the evaluation of working methods and the results of its work and each Board member’s technological matters, IPR strategy and product development plans. In contribution in an open dialogue at the Board meeting in connection 2011, the committee held a total of four meetings. with approval of the interim financial report for the third quarter. The evaluation is headed by the Chairman. Manufacturing & Excellence Committee The Manufacturing & Excellence Committee supports the Board in Vestas shares held by Board members the evaluation of the Supply Chain. The committee also supports the At 31 December 2011, members of Vestas’ Board of Directors and Board in matters concerning sustainability, quality, warranty obliga- their related parties held a total of 151,158 Vestas shares. At 31 tions and product industrialisation. In 2011, the committee held a December 2011, these shares represented a combined market value total of six meetings. of approx EUR 1.3m, ref. note 32 to the consolidated accounts. Executive Management The members of Vestas’ Board of Directors are registered on the The Executive Management of Vestas Wind Systems A/S is appointed Vestas insider list. As a general rule, these persons may only trade by the company’s Board of Directors. If the company’s Executive Man- in Vestas shares during a four-week period following the disclosure agement consist of more than one member, the Board of Directors will of the annual report, interim financial reports or other financial appoint one of them as Chief Executive Officer and manager of the announcements, ref. the company’s internal rules. day-to-day work of the Executive Management. Moreover, the Board

Corporate governance · Vestas annual report 2011 039 of Directors lays down the distribution of competences among the ees receive the same remuneration as the board members elected by members of the Executive Management. Members of the Executive the shareholders. Management must retire before they reach the age of 70. The Chairman receives a triple basic remuneration and the Deputy The work of the Executive Management Chairman receives a double basic remuneration for their extended The Executive Management is responsible for the day-to-day manage- board duties. ment of the company, observing the guidelines and recommendations issued by the Board of Directors. The Executive Management is also In addition to the basic remuneration, Board members receive commit- responsible for presenting proposals for the company’s overall objec- tee remuneration of EUR 21,804 for sitting on one of the board com- tive, strategies and action plans as well as proposals for the overall mittees. The remuneration is determined using the same principles operating, investment, financing and liquidity budgets to the Board of as for the basic remuneration, and the committee chairman receives a Directors. double committee remuneration.

The Executive Management monitors compliance with relevant legis- For 2011, a total of EUR 1.0m was paid in remuneration to Board and lation and other financial reporting regulations and provisions. Find- committee members, ref. note 6 to the consolidated accounts. No spe- ings concerning operational and financial risks are reported continu- cial fees have been paid. ously to the Audit Committee and the Board of Directors. The Board members are not comprised by any incentive programme The Executive Management’s rules of procedure are available at (option programme, bonus scheme or similar) or by Vestas’ pension vestas.com. scheme, and in case of a takeover, the directors will not receive any compensation. Vestas shares held by Executive Management At 31 December 2011, members of Vestas’ Executive Management Remuneration to the Executive Management and their related parties held a total of 2,437 Vestas shares. These The Board of Directors believes that a combination of fixed and shares represented a combined market value of approx EUR 0.02m, performance-based pay to the Executive Management helps ensure ref. note 32 to the consolidated accounts. that the company can attract and retain key employees. At the same time, the Executive Management is given a further incentive to create The members of the Executive Management are registered on the shareholder value through partly incentive-based pay. Vestas insider list. As a general rule, these persons may only trade in Vestas shares during a four-week period following the disclosure Members of the Executive Management are employed under executive of the annual report, interim financial reports or other financial service contracts, and all terms of their remuneration are fixed by the announcements, ref. the company’s internal rules. Board of Directors.

The members of the Executive Management have a duty to report any Members of the Executive Management receive a competitive remu- share transactions, and a list of disclosed insider transactions made neration package consisting of a fixed salary, share options and bonus. during the year is available at vestas.com. Fixed salary is based on a market level, share options focus on reten- tion and long-term value creation for the shareholders, and bonus Remuneration is based on the results for the year. If it is proved after the grant of Vestas is a global Group based in Denmark, Scandinavia, which is re- variable components to members of the Executive Management that flected in the Group’s remuneration principles. As an employer, Vestas these were paid erroneously, the company may in exceptional cases undertakes to ensure responsibility and equal opportunities for its reclaim in full or in part variable components. employees and to work actively to promote diversity. In 2011, a total of EUR 1.7m was paid in salaries to the Executive Vestas’ global remuneration principles for executives are based on Management, and EUR 1.1m was expensed as share-based payment, Mercer’s International Position Evaluation System. Mercer Reward ref. note 6 to the consolidated accounts. No bonus was paid in 2011 Surveys are used as the benchmark. under the 2010 bonus programme.

For all other employee groups, locally based statistics are used as the Based on proposals from the Nomination & Compensation Commit- basis for the remuneration. tee for the remuneration of the Executive Management, the Board of Directors annually assesses and approves the remuneration to ensure Remuneration policy for the Board of Directors and the that it is in line with the conditions in comparable companies. Executive Management The remuneration policy for members of the Board of Directors and The service contracts for the members of the Executive Management the Executive Management of Vestas Wind Systems A/S reflects the contain a notice of termination of up to 24 months, which is normal for interests of the shareholders and the company, taking into considera- executives in Danish companies. tion any specific matters, including the assignments and the responsibility undertaken. The policy is available at vestas.com. The members of the Executive Management will not receive any compensation in the event of termination in connection with a change Remuneration to the Board of Directors of ownership of the company’s voting majority or if the company is Efforts are made to ensure that the remuneration of the Board of dissolved through a merger or demerger. Their notice of termination Directors matches the level in comparable companies, whilst also taking will, however, be changed to 36 months. There are no agreements on into consideration board members’ required competencies, efforts and severance pay to any member of the Executive Management. the scope of the board work, including the number of meetings. Share-based incentive programme for 2009, 2010 and 2011 Each member of the Board of Directors receives annually a fixed basic In 2011, an option programme was established for the Executive remuneration of EUR 43,606. Board members elected by the employ- Management and selected executives. More information about

040 Vestas annual report 2011 · Corporate governance this option programme is provided in note 32 to the consolidated The bonus programme defines a number of measurable focus areas, or accounts. Key Performance Indicators, which help accomplish Vestas’ strategic goals. From 2006-2009, the option programme comprised the Executive Management, Presidents and Group Senior Vice Presidents reporting To ensure a clear connection between the performance of each individ- directly to the Executive Management, and in 2010 the programme ual employee and the bonus payment, for 2011 the bonus programme was extended to include the other Senior Vice Presidents, Vice Presi- was strongly focused towards the results achieved in the individual dents, Chief Specialists and Chief Project Managers. business unit. For most managers and employees, the targets for the Group carried a weight of 40 per cent, while business unit targets In the financial year 2011, a total of 997,857 options were granted to including safety, inventory days and local customer relations carried 374 persons under the 2011 programme exercisable in 2015-2016 a weight of 60 per cent. For the Vestas Government and employees in at a price of DKK 184.06. Out of this, the Executive Management was corporate functions, the bonus depended exclusively on the Group’s granted 82,869 options. The allotment of options for the financial performance relative to the expectations announced for the year. year was made in connection with the Board of Directors’ approval of this annual report. The terms and conditions of the options are equiva- Disbursed bonus lent to the terms and conditions of the options issued for the financial Disbursed to Disbursed to year 2010. the Executive other mEUR Management employees For each year, the present value of the options granted to the Execu- tive Management must not exceed 115 per cent of the gross salary 2008 0.3 38.0 at the date of grant. For Presidents, the value must not exceed 90 per 2009 0.9 57.7 cent, for Group Senior Vice Presidents 80 per cent, for Senior Vice 2010 0 0 Presidents 50 per cent, and for Vice Presidents, Chief Specialists and 2011 0 0 Chief Project Managers the value of options granted must not exceed 20 per cent of their gross salary. The present value of the share options is calculated in accordance with the Black-Scholes model. The Group’s bonus targets for 2011 were an EBIT margin of 8.4 per When exercising the options, the Executive Management and the cent (35 per cent weighting), a free cash flow of EUR 200m (30 per participants who report directly to the Executive Management must cent), a customer loyalty index of 72 (20 per cent) and revenue of EUR reinvest 50 per cent of the after-tax gain in Vestas shares which must 7bn (15 per cent). be held for at least three years. Based on the results achieved in 2011, no bonus will be paid in 2012 No executives exercised their allotted options in 2011, and at the end to the Executive Management and the other employees for 2011. of 2011, Vestas had a total of 2,357,852 outstanding options, of which 329,684 were granted to the Executive Management. The Group bonus targets for 2012 are an EBIT margin of 5.0 per cent (35 per cent weighting), a free cash flow of EUR 300m (30 per cent Bonus programme weighting), a CRSI index of 81 (20 per cent weighting) and revenue of The overall objective of Vestas’ bonus programme is to reward all EUR 8bn (15 per cent weighting). Vestas employees financially when the annual targets are achieved – financial as well as non-financial. The bonus programme builds on The bonus disbursement is based on national legislation and is sub- Vestas’ corporate strategy, which sets out that all employees should ject to local adjustments. be rewarded when Vestas improves profitability. The background is that all Vestas employees contribute to the same value creation and Code of Conduct provide support to the same customers, regardless of whether they As Vestas gradually grows bigger and bigger with employees and work in a support function or whether they develop, manufacture, mar- business partners with widely different cultural backgrounds, religious ket, sell, install or render service on wind turbines. beliefs and political convictions, it is becoming more and more impor-

Grant of options Number of Number of Number of Number of Number of Number of Exercise price Exercise options employees exercised lapsed outstanding options (DKK) period granted options options5) options granted to the Executive Year of grant Management 2006 56,448 18 2,550 7,293 46,605 16,378 147.60 2010-2012 2007 207,952 19 0 24,746 183,206 53,939 380.50 2010-2012 2008 189,002 19 - 14,486 174,516 51,380 380.50 2010-2014 2009 236,954 25 - 22,111 214,843 49,783 380.50 2013-2015 2010 832,382 349 - 49,251 783,131 75,335 320.60 2014-2015 2011 997,857 374 - 42,306 955,551 82,869 184.06 2015-2016

5) Number of lapsed options cover options cancelled due to retired employees.

Corporate governance · Vestas annual report 2011 041 tant to have a formal set of common values. Vestas’ Code of Conduct Furthermore, a special procedure for gifts, entertainment and hospital- is to ensure that all employees and other persons acting on behalf of ity in relation to government officials is being implemented in Vestas’ Vestas know what is correct Vestas behaviour. Government Relations function. This procedure is expected to be implemented throughout Vestas in the years to come. The procedure Vestas’ Code of Conduct sets the framework for the work of supporting aims to ensure that decisions on spending money on gifts, entertain- the principles of the UN Global Compact. Vestas will endeavour to ment and hospitality are based on sound and objective business ensure that its business partners also respect these principles. arguments and that the decisions are well-documented. In the years to come, the PACI principles will be fully implemented. Code of Conduct – internal In 2011, Vestas continued its work to ensure a high degree of busi- Compliance ness ethics and to disseminate the Code of Conduct. Code of Conduct Vestas attaches great importance to ensuring an ethical environment is accessible for all employees via e-learning, information material in in its operations, and to that end Vestas established a system in 2007 18 languages, etc. in which employees anonymously can report inappropriate behaviour or events. Vestas calls the system EthicsLine, and the system was To underline the importance of and further anchor the principles of extended in 2011 so that the company’s business partners also have Vestas’ Code of Conduct, in 2011, the Executive Management and access to asking questions or to report any suspicions about viola- Presidents of the business units then in place individually signed tions of Vestas’ Code of Conduct. a declaration that they have read and understood Vestas’ Code of Conduct and that they are not aware of any violation of Vestas’ Code of Vestas’ Audit Committee receives reports from the management on Conduct within their areas of responsibility which they have not han- compliance with the guidelines, omissions or cases of non-compliance dled in an adequate manner. with adopted policies, business procedures or internal controls.

Code of Conduct – external In 2011, EthicsLine received a total of 86 inquiries. The inquiries Vestas’ supply chain covers more than 1,000 business partners concerned partly questions concerning the interpretation of Code of throughout the world, giving Vestas good opportunities to help dis- Conduct and partly suspected violations of the Code of Conduct. seminate awareness of the UN Global Compact and other similar initiatives. However, there are large national and cultural differences Statutory report on corporate governance between business partners, and the large number of business partners Pursuant to section 107b of the Danish Financial Statements Act reduces the opportunities for implementing swift changes. and clause 4.3 of “Rules for Issuers of Shares – NASDAQ OMX Copenhagen”, listed companies must prepare a corporate governance Vestas’ long-term efforts involve a combination of requirements, report. The report must contain a description of the company’s posi- advice and guidance in the fields of safety, the environment, human tion on the recommendations in force. The committee’s recommenda- rights, labour rights, ethics, etc. with the aim of ensuring that not only tions are available on corporategovernance.dk. Vestas’ production, but the whole product and the creation thereof, is sustainable in the broadest sense. In connection with the preparation of the corporate governance report, the company must apply the “comply or explain” principle. The “com- For more information on sustainability in relation to Vestas’ business ply or explain” principle entails that the company must either comply partners, see vestas.com. with the corporate governance recommendations or explain why the recommendations are not fully or partly complied with. This means Anti-corruption initiative that the company must state which recommendations it does not com- Vestas has signed World Economic Forum’s “Partnering Against ply with, that it must explain the reasons for such non-compliance and, Corruption Initiative” (PACI). Vestas pursues a large number of anti- where relevant, state how it addresses the issue in question instead. corruption initiatives recommended by PACI, but as a PACI member, Vestas undertakes to develop and implement additional guidelines, The recommendations specify that the circumstances of each com- processes, tools and control systems generally recognised to support pany will govern the extent to which the recommendations are com- a company’s zero-tolerance policy on bribery and corruption. plied with, or whether it is appropriate not to comply, as the key issue is to create transparency in corporate governance matters. In 2011, the company focused on aspects such as the development of an anti-corruption due diligence programme for use in selecting The statutory report for 2011 is available at vestas.com/investor/ Vestas’ business partners. The due diligence programme will be im- corporategovernance. plemented in Vestas in 2012 in selected areas, and the programme is expected to be fully implemented throughout Vestas in the years to come.

042 Vestas annual report 2011 · Corporate governance

Competencies and fiduciary positions of the Torsten Erik Rasmussen members of the Board of Directors Born: 29 June 1944 Nationality: Danish Bent Erik Carlsen Resident: Denmark Born: 3 April 1945 Position: Managing Director (CEO), Nationality: Danish Morgan Management ApS (Denmark) 1997–. Resident: Denmark Position: Director, B. Carlsen Shipping ApS (Denmark) 2007–. Position with Vestas Wind Systems A/S Deputy Chairman of the company ’s Board of Directors since 2006. Position with Vestas Wind Systems A/S Elected to the Board of Directors in January 1998 and re-elected for Chairman of the company’s Board of Directors since 1996. Elected subsequent terms, most recently in 2011. Term of office expires in to the Board of Directors in September 1996 and re-elected for 2012. subsequent terms, most recently in 2011. Term of office expires in 2012. Mr Rasmussen does not meet the definition of independence as set out by the Danish Corporate Governance Committee6) as he has been a Mr Carlsen does not meet the definition of independence as set out member of the Board of Directors for more than 12 years. by the Danish Corporate Governance Committee6) as he has been a member of the Board of Directors for more than 12 years. Elected by the Board of Directors as member of the Nomination & Compensation Committee and the Manufacturing & Excellence Designated by the Board of Directors as Chairman of the Nomination & Committee. Compensation Committee and the Technology Committee. Shareholding Shareholding Vestas shareholding as per 31 December 2011: 7,837 shares.7) Increased his holdings of Vestas shares in 2011 by 10,000 shares. Shareholding as per 31 December 2011: 116,120 shares. Competencies Education Competencies 1961–1964 Commercial education, Education Dalhoff Larsen & Horneman A/S (Denmark) 1972 B. Com. (marketing), 1964–1966 Military service, Royal Danish Life Guards (Denmark) and Copenhagen Business School (Denmark) discharged as First lieutenant (R) 1967 1978 B. Com. (management accounting), 1972 MBA, IMEDE, Lausanne (Switzerland) Copenhagen Business School (Denmark) 1985 International Senior Managers’ Program, – Various management courses INSEAD (France) Harvard Business School (USA)

Former positions Former positions 1969–1972 Sales Manager, Colon Emballage A/S (Denmark) 1967–1971 Department Manager and later Director, 1972–1979 Managing Director, Eurocard Denmark A/S (Denmark) Northern Soft- & Hardwood Co. Ltd. (Congo) 1979–1981 Managing Director, 1973 Management Assistant, LEGO System A/S (Denmark) Winther & Heide Eftf. A/S (Denmark) 1973–1975 Finance and Administration Director, 1981–1983 Member of the European Management, LEGOLAND A/S (Denmark) Air Liquide (France) 1975–1977 Logistics Manager, LEGO System A/S (Denmark) 1983–1988 Managing Director, 1977 Vice President, logistics, LEGO System A/S (Denmark) Aktieselskabet Dansk Ilt- & Brintfabrik (Denmark) 1978–1980 President and CEO, LEGO Overseas A/S (Denmark) 1988–1990 Managing Director, Fro Saldatura S.A. (Italy) 1981–1997 Executive Vice President, Operations and member of 1990–1992 Managing Director, L' Air Liquide Belge sa-nv (Belgium) the Group Management, LEGO A/S (Denmark) 1992–1999 Managing Director, Hede Nielsen A/S (Denmark) 1999–2002 Managing Director, Air Liquide Scandinavia (Denmark) Special competencies 2002–2008 Group Executive Vice President, Mr Rasmussen has the following special competencies which A.P. Møller-Mærsk A/S (Denmark) specifically are essential to the work of the Board of Directors of Vestas Wind Systems A/S: In-depth knowledge of strategic Special competencies management and organisation of nationally and globally based Mr Carlsen has the following special competencies which specifically companies, significant experience within technology, production and are essential to the work of the Board of Directors of Vestas Wind logistics in globally branded companies as well as experience within Systems A/S: In-depth knowledge of managing international and accounting and finance. national companies, including thorough knowledge of strategic management. Detailed knowledge of the company's affairs and the Fiduciary positions industry based on many years of experience from working on the Chairman of the Boards of: Acadia Pharmaceuticals A/S (Denmark), Board of Directors of the company. Ball ApS (Denmark), Ball Holding ApS (Denmark), Ball Invest ApS (Denmark), CPD Invest ApS (Denmark), Oase Outdoors ApS (Denmark), Fiduciary positions and Procuratio Business Simulations ApS (Denmark). Member of the Boards of: Investeringsforeningen Valueinvest Danmark (Denmark), Odense Staalskibsværft A/S (Denmark) and SIF Deputy Chairman of the Board of: TK Development A/S (Denmark). Group BV (The Netherlands).

044 Vestas annual report 2011 · Corporate governance Member of the Boards of: Acadia Pharmaceuticals Inc. (USA), Morgan Positions of trust Invest ApS (Denmark), Schur International A/S (Denmark), Vola A/S Chairman of: FORNYELSESFONDEN (Denmark). (Denmark), Vola Ejendomme ApS (Denmark) and Vola Holding A/S (Denmark). Member of: The General Council of the Confederation of Danish Industries (Denmark) and the Board of Provincial Industries Positions of trust Employers’ Federation (Denmark). Chairman of: Acadia Pharmaceuticals Inc.’s Corporate Governance Committee (USA). Elly Smedegaard Rex Member: Acadia Pharmaceuticals Inc.’s Compensation Committee Born: 13 May 1955 (USA). Nationality: Danish Resident: Denmark Position: Service assistant and shop steward, Carsten Bjerg Vestas Wind Systems A/S (Denmark) 1999–. Born: 12 November 1959 Nationality: Danish Position with Vestas Wind Systems A/S Resident: Denmark Elected by company employees. Member of the Board of Directors Position: CEO and Group President of Grundfos Management A/S since April 2008. Term of office expires in 2012. (Denmark) 2007–. Ms Rex does not meet the definition of independence as set out by the Position with Vestas Wind Systems A/S Danish Corporate Governance Committee6) due to employment with Elected to the Board of Directors in March 2011. Term of office Vestas Wind Systems A/S (Denmark). expires in 2012. Shareholding Meets the definition of independence as set out by the Danish In 2011, a related party has purchased 200 Vestas shares. Corporate Governance Committee.6) Shareholding as per 31 December 2011: 200 shares.7)

Shareholding Competencies Increased his holdings of Vestas shares in 2011 by 1,831 shares. Education Shareholding as per 31 December 2011: 1,831 shares. 1973 Dental nurse (Denmark)

Competencies Former positions Education 1974 Shop assistant, Lem El (Denmark) 1983 BSc Engineering, Shop assistant, Stop (Denmark) The Engineering Academy of Denmark (Denmark) 1980–1983 Host, Ølstrup parish community centre (Denmark) 1984–1985 ACPMM, University of Cambridge (England) 1983–1985 Dental nurse, Tandlægerne i Nygade (Denmark) Dental nurse, Tandlæge Bidstrup (Denmark) Former positions 1986 Host, Ølstrup parish community centre (Denmark) 1983–1984 Engineer & Trainee, Danfoss A/S (Denmark) 1987–1990 Office manager, Sommerland Vest (Denmark) 1985–1989 Project Manager, Danfoss A/S (Denmark) 1991–1993 Dental nurse, Tandlægerne i Nygade (Denmark) 1989–1994 Plant Manager, Danfoss A/S (Denmark) 1993–1994 Office manager, Sommerland Vest (Denmark) 1994–1997 Product Line Director, Danfoss A/S (Denmark) 1995–1996 Kitchen assistant, ROFI-Centret Ringkøbing (Denmark) 1997–2000 SVP, International Production, Kitchen assistant, Vedersø Mejerikro (Denmark) Grundfos Management A/S (Denmark) 1997–1998 Office manager, 2000–2003 EVP, Production & Logistics, Troldeparken Sommerland Vest (Denmark) Grundfos Management A/S (Denmark) 1998–1999 Kitchen assistant, ROFI-Centret Ringkøbing (Denmark) 2003–2006 Deputy CEO, Grundfos Management A/S (Denmark) 2006–2007 Acting CEO, Grundfos Management A/S (Denmark) Special competencies Ms Rex has the following special competencies which are essential Special competencies to the work of the Board of D irectors of Vestas Wind Systems A/S: Mr Bjerg has the following special competencies which specifically Indepth knowledge of human resources and day-to-day operations, will be essential to the work of the Board of Directors of Vestas Wind etc. of the Vestas Group. Systems A/S: In-depth knowledge of managing an international group including thorough knowledge of R&D, manufacturing and strategic management.

Fiduciary positions Chairman of the Boards of: Grundfos China Holding Co., Ltd. (China), Grundfos Holding AG (Switzerland), Grundfos New Business A/S (Denmark) and Grundfos Pumps (Shanghai) Co., Ltd. (China).

Member of the Board of: Grundfos Finance A/S (Denmark) and Rockwool International A/S (Denmark).

Corporate governance · Vestas annual report 2011 045 Freddy Frandsen Håkan Eriksson Born: 24 April 1944 Born: 8 April 1961 Nationality: Danish Nationality: Swedish Resident: Denmark Resident: USA Position: Director Position: Head of Ericsson Australia, New Zealand and Fiji (Australia) 2012–. Position with Vestas Wind Systems A/S Elected to the Board of Directors in April 2004 and re-elected for Position with Vestas Wind Systems A/S subsequent terms, most recently in 2011. Term of office expires in Elected to the Board of Directors in March 2009 and re-elected for 2012. subsequent terms, most recently in 2011. Term of office expires in 2012. Mr Frandsen meets the definition of independence as set out by the Danish Corporate Governance Committee6) and the definition of Mr Eriksson meets the definition of independence as set out by the independence of audit committee members as set out in the Danish Danish Corporate Governance Committee.6) Auditors’ Act.8) Elected by the Board of Directors as a member of the Technology Designated by the Board of Directors as Chairman of the Committee. Manufacturing & Excellence Committee and elected as a member of the Audit Committee. Shareholding Does not hold shares in the company. Shareholding Vestas shareholding as per 31 December 2011: 3,653 shares.7) Competencies Education Competencies 1981–1985 MSc engineering (electrical), Linköping Institute of Education Technology, Linköping University (Sweden) 1967 Electronic Engineer, 2005 Honorary PhD, Linköping Institute of Technology, Engineering College of Aarhus (Denmark) Linköping University (Sweden) – Various management courses INSEAD (Denmark) Former positions Former positions 1986–1992 Employed with Ericsson Radio Systems AB (Sweden) 1967–1973 Engineer, Industry Department, 1992–1995 Manager, Systems Research and Development Bruun & Sørensen A/S (Denmark) department, Ericsson Radio Systems AB (Sweden) 1973–1987 Divisional Director, Skako A/S (Denmark) 1995–1997 Director, Systems Design and Management Ericsson 1987–1989 Managing Director, Research Canada (Canada) Kverneland-Danmark A/S (Denmark) 1997–1998 Vice President, Business and Technology Development, 1989–1993 Managing Director, Pedershaab A/S (Denmark) Ericsson Radio Systems AB (Sweden) 1993–2005 Managing Director, Aalborg Industries A/S (Denmark) 1998–2003 Vice President and General Manager, Ericsson Research, Ericsson Radio Systems AB (Sweden) Special competencies 2003–2009 Senior Vice President and General Manager, Mr Frandsen has the following special competencies which specifically Research & Development, Telefonaktiebolaget are essential to the work of the Board of Directors of Vestas Wind LM Ericsson (Sweden) Systems A/S: In-depth knowledge of management and manufacturing 2009–2012 Group Chief Technology Officer Ericsson, matters and industry insight into production companies. Telefonaktiebolaget LM Ericsson (Sweden) 2010–2012 Head of Ericsson Silicon Valley, Telefonaktiebolaget LM Fiduciary positions Ericsson (USA) 2010–. Chairman of the Board of: Hans Følsgaard A/S (Denmark). Special competencies Member of the Boards of: Desmi A/S (Denmark), Lindø Industripark Mr Eriksson has the following special competencies which specifically A/S (Denmark), Odense Staalskibsværft A/S (Denmark), Polaris are essential to the work of the Board of Directors of Vestas Wind Invest II ApS (Denmark), Polaris Management A/S (Denmark), Systems A/S: In-depth knowledge of international affairs, including Svejsemaskinefabrikken Migatronic A/S (Denmark) and Aalborg research and development. University (Denmark). Positions of trust Positions of trust Member of: Kungliga Ingenjörsvetenskapsakademien (Sweden). Chairman of: Følsgaard Fonden (Denmark).

Member of: Nordsøen Forskerpark/Ocenarium (Denmark) and The Jørgen Huno Rasmussen non-profit foundation: Utzon Foundation (Denmark). Born: 25 June 1952 Nationality: Danish Resident: Denmark Position: President and CEO, FLSmidth & Co. A/S (Denmark) 2004–.

Position with Vestas Wind Systems A/S Elected to the Board of Directors in January 1998 and re-elected for subsequent terms, most recently in 2011. Term of office expires in 2012.

046 Vestas annual report 2011 · Corporate governance Mr Rasmussen does not meet the definition of independence as set Mr Thomsen does not meet the definition of independence as set out out by the Danish Corporate Governance Committee6) as he has been a by the Danish Corporate Governance Committee6) and the definition member of the Board of Directors for more than 12 years. of independence of audit committee members as set out in the Danish Auditors’ Act8) due to connection to one of the law firms acting as Elected by the Board of Directors as a member of the Technology consultant to the company. Committee. Elected by the Board of Directors as a member of the Nomination & Shareholding Compensations Committee and the Audit Committee. Increased his holdings of Vestas shares in 2011 by 2,435 shares. Shareholding as per 31 December 2011: 2,935 shares. Shareholding Vestas shareholding as per 31 December 2011: 2,500 shares. Competencies Education Competencies 1976 MSc engineering (civil), Education the Technical University (Denmark) 1970 Master of Law, University of Copenhagen (Denmark) 1977 B. Com. (organisation), Copenhagen Business School (Denmark) Former positions 1980 Ph.D. , the Technical University (Denmark) 1970–1974 Deputy judge and Junior associate (Denmark) and Lawyer in 1974 Former positions 1979–1982 Project Manager, A. Jespersen & Søn A/S (Denmark) Special competencies 1982–1983 Manager, Industrial Construction, Mr Thomsen has the following special competencies which specifically Chr. Islef & Co. A/S (Denmark) are essential to the work of the Board of Directors of Vestas Wind 1983–1986 Department Manager, Systems A/S: In-depth knowledge of international and national legal H. Hoffmann & Sønner A/S (Denmark) matters, including corporate law and securities law. 1986–1988 Director of International Operations, H. Hoffmann & Sønner A/S (Denmark) Fiduciary positions 1988–2003 Managing Director, Hoffmann A/S (Denmark) Chairman of the Boards of: Aida A/S (Denmark), Aktieselskabet 2000–2003 Director and member of the Group Management, Schouw & Co. (Denmark), Carlsen Byggecenter Løgten A/S Veidekke ASA (Norway) (Denmark), Carlsen Supermarked Løgten A/S (Denmark), Danish Industrial Equipment A/S (Denmark), DB 2001 A/S (Denmark), Special competencies Den Professionelle Forening Danske Invest Institutional (Denmark), Mr Rasmussen has the following special competencies which F.M.J. A/S (Denmark), Fibertex Nonwovens A/S (Denmark), Fibertex specifically are essential to the work of the Board of Directors of Personal Care A/S (Denmark), Fåmandsforeningen Danske Invest Vestas Wind Systems A/S: In-depth knowledge of managing an Institutional (Denmark), GAM Holding A/S (Denmark), GAM Wood A/S international, listed group and optimising production processes. (Denmark), Givesco A/S (Denmark), Investeringsforeningen Danske Invest (Denmark), Investeringsforeningen Danske Invest AlmenBolig Fiduciary positions (Denmark), Investeringsforeningen Danske Invest Select (Denmark), Chairman of the Boards of: 11 subsidiaries of the FLSmidth Group Kildebjerg Ry A/S (Denmark), Løgten Midt A/S (Denmark), Martin (Denmark). Professional A/S (Denmark), Placeringsforeningen Profil Invest (Denmark), Schouw & Co. Finans A/S (Denmark), Specialforeningen Deputy Chairman of the Boards of: Cembrit Holding A/S (Denmark), Danske Invest (Denmark), Søndergaard Give A/S (Denmark) and Th. C. the Lundbeck foundation (Denmark) and Tryghedsgruppen SMBA Carlsen, Løgten A/S (Denmark). (Denmark). Member of the Boards of: ASM Foods AB (Sweden), Biomar Group A/S Member of the Board of: Lundbeckfond Invest A/S (Denmark). (Denmark), Carletti A/S (Denmark), Dan Cake A/S (Denmark), Danske Invest Management A/S (Denmark), Develvo Products A/S (Denmark), Positions of trust Ejendomsselskabet Blomstervej 16 A/S (Denmark), Givesco Bakery Member of: The General Council of the Confederation of Danish A/S (Denmark), Hydra-Grene A/S (Denmark), Hydra-Grene Holding Industries (Denmark), the Board of the Copenhagen Industries A/S (Denmark) and P. Grene A/S (Denmark). Employers’ Federation (Denmark) and the representatives of the Tryghedsgruppen (Denmark). Positions of trust Chairman of: Direktør Svend Hornsylds Legat (Denmark).

Jørn Ankær Thomsen Deputy Chairman of: Jens Eskildsen og hustru Mary Antonie Eskildsen Born: 17 May 1945 memorial foundation (Denmark). Nationality: Danish Resident: Denmark Member of: Købmand Th. C. Carlsens Memorial foundation (Denmark). Position: Attorney at Law and partner, Gorrissen Federspiel (Denmark) 1976–.

Position with Vestas Wind Systems A/S Elected to the Board of Directors in April 2004 and re-elected for subsequent terms, most recently in 2011. Term of office expires in 2012.

Corporate governance · Vestas annual report 2011 047 Kim Hvid Thomsen Shareholding Born: 8 August 1963 Increased his holding of Vestas shares in 2011 by 1,200 shares. Nationality: Danish Shareholding as per 31 December 2011: 7,450.7) Resident: Denmark Position: Industry technician and Senior Shop Steward, Competencies Vestas Nacelles A/S (Denmark) 1985–. Education 1972 MSc (Economics and Business Administration), Position with Vestas Wind Systems A/S Copenhagen Business School (Denmark) Elected by Group employees. Member of the Board of Directors since May 1996 and re-elected for subsequent terms, most recently in Former positions 2008. Term of office expires in 2012. 1972–1973 Business Economist, Carlsberg A/S (Denmark) 1973–1974 Management Consultant, Booz, Allen and Hamilton of Mr Thomsen does not meet the definition of independence as set out Scandinavia (Denmark) by the Danish Corporate Governance Committee6) due to employment 1974–1977 Economist, Novo Industri A/S (Denmark) with the Vestas Nacelles A/S (Denmark). 1977–1984 Head of Corporate Planning, Novo Industri A/S (Denmark) Elected by the Board of Directors as member of the Manufacturing & 1984–1985 Director, Corporate Planning and Communications, Excellence Committee. Novo Industri A/S (Denmark) 1985–1989 Vice President Corporate Finance, Shareholding Novo Industri A/S (Denmark) Increased his and one of his related parties’ holdings of Vestas shares 1989–2000 Chief Financial Officer, in 2011 by 1,652 shares. Shareholding as per 31 December 2011: Novo Nordisk A/S (Denmark) 4,798 shares.7) 1996–2000 Deputy CEO, Novo Nordisk A/S (Denmark) 2000–2003 CEO, Novo A/S (Denmark) Competencies Education Special competencies 1984 Industry technician (Denmark) Mr Nielsen has the following special competencies which are essential to the work of the Board of Directors of Vestas Wind Systems A/S: Former positions In-depth knowledge of accounting, finance, capital markets and other 1981–1984 Industry technician trainee, financial matters as well as experience of managing an international, Tim Maskinfabrik (Denmark) listed group. 1985 Industry technician, K.P. Komponenter (Denmark) Fiduciary positions Special competencies Chairman of the Boards of: Dalhoff Larsen & Horneman A/S (Denmark) Mr Thomsen has the following special competencies which specifically and Reliance A/S (Denmark). are essential to the work of the Board of Directors of Vestas Wind Systems A/S: In-depth knowledge of production processes and human Deputy Chairman of the Board of: Novozymes A/S (Denmark). resources, etc. of the Vestas Group. Member of the Boards of: Novo Nordisk A/S (Denmark), Novo Nordisk Fiduciary positions Fonden (Denmark) and Veloxis Pharmaceuticals A/S (Denmark). Deputy Chairman of the Board of: Metal Skjern-Ringkøbing (Denmark). Positions of trust Member of the Board of: Uddannelsescenter Ringkøbing-Skjern Chairman of: Novo Nordisk A/S’ Audit Committee (Denmark), (Denmark). Novozymes A/S’ Audit Committee (Denmark) and Veloxis Pharmaceuticals A/S’ Audit Committee (Denmark).

Kurt Anker Nielsen Born: 8 August 1945 Michael Abildgaard Lisbjerg Nationality: Danish Born: 17 September 1974 Resident: Denmark Nationality: Danish Position: Director Resident: Denmark Position: Skilled Worker - Production and Shop Steward, Position with Vestas Wind Systems A/S Vestas Nacelles A/S (Denmark) 2001–. Elected to the Board of Directors in April 2006 and re-elected for subsequent terms, most recently in 2011. Term of office expires in Position with Vestas Wind Systems A/S 2012. Elected by Group employees. Member of the Board of Directors since April 2008. Term of office expires in 2012. Mr Nielsen meets the definition of independence as set out by the Danish Corporate Governance Committee6) and the definition of Mr Lisbjerg does not meet the definition of independence as set out independence of audit committee members as set out in the Danish by the Danish Corporate Governance Committee6) due to employment Auditors’ Act.8) with the Vestas Nacelles A/S (Denmark).

Designated by the Board of Directors as Chairman of the Audit Shareholding Committee and demand for qualifications within financial accounting. Increased his holding of Vestas shares in 2011 by 406 shares. Shareholding as per 31 December 2011: 834 shares.

048 Vestas annual report 2011 · Corporate governance Competencies Fiduciary positions of the members of the Education Executive Management 1995 Auto Mechanic (Denmark) 1996–1999 Military service, Royal Danish Life Guards (Denmark) Ditlev Engel and discharged as technical sergeant Born: 24 May 1964 1998 Higher Preparatory Course – single subject (Denmark) Nationality: Danish 2010–2011 Project management, Erhversakademi MidtVest Resident: Denmark (Denmark) Position: President and CEO, Vestas Wind Systems A/S (Denmark) 2005–. Former positions 1999–2001 Nordisk Dæk Import A/S (Denmark) Position in Vestas Wind Systems A/S Special competencies Member of the Executive Management since May 2005. Mr Lisbjerg has the following special competencies which specifically are essential to the work of the Board of Directors of Vestas Wind Shareholding Systems A/S: In-depth knowledge of production processes and human Vestas shareholding as per 31 December 2011: 2,224 shares.7) resources, etc. of the Vestas Group. Competencies Education Sussie Dvinge Agerbo 1990 Diploma in Business Economics, Born: 5 November 1970 Copenhagen Business School (Denmark) Nationality: Danish 1997 General Management Program – INSEAD (France) Resident: Denmark Position: People & Culture employee, Vestas Wind Systems A/S Former positions (Denmark) 1990–. 1990–1992 Vice President of Hempel Hong Kong Ltd. (Hong Kong) 1992–1995 Vice President of Hempel Hai Hong Ltd. (Hong Kong) Position with Vestas Wind Systems A/S 1995–1997 President of Hempel Norge AS (Norway) Elected by company employees. Member of the Board of Directors 1997–1999 President of Hempel Hai Hong Ltd. (China) since November 2005 and re-elected for subsequent terms, most 1999–2000 Executive Vice President of Hempel A/S (Denmark) recently in 2008. Term of office expires in 2012. 2000–2005 Group President and CEO of Hempel A/S (Denmark)

Ms Agerbo does not meet the definition of independence as set out Fiduciary positions by the Danish Corporate Governance Committee6) due to employment Member of: The General Council of the Confederation of Danish with Vestas Wind Systems A/S (Denmark). Industries (Denmark), the Industrial Policy Committee of the Confederation of Danish Industries (Denmark), the International Shareholding Advisory Panel (IAP) on Energy from the Singaporean Ministry of Vestas shareholding as per 31 December 2011: 3,000 shares.7) Trade and Industry (Singapore), the Industry Advisory Group of the International Energy Agency (France) and UN’s ”High-Level Group on Competencies Sustainable Energy for All” . Education 1989–1992 Commercial upper secondary examination (Denmark) Industrial advisor for: EQT (Sweden). and office assistant 1995 Language secretary, English, Open education at HIH Herning (Denmark) Henrik Nørremark 1997 Language secretary, German, Open education at Born: 24 May 1966 HIH Herning (Denmark) Nationality: Danish 2003 IT Administrator, Ringkøbing Business College/ Resident: Denmark Vestjysk Business College, Skjern (Denmark) Position: Deputy CEO and Chief Operating Officer (COO) and acting Chief Financial Officer (CFO), Vestas Wind Systems A/S (Denmark) Special competencies 2012–. Ms Agerbo has the following special competencies which specifically are essential to the work of the Board of Directors of Vestas Wind Position in Vestas Wind Systems A/S Systems A/S: In-depth knowledge of organisational structures and Member of the Executive Management since March 2004. human resources, etc. of the Vestas Group. Shareholding Vestas shareholding as per 31 December 2011: 213 shares.

Competencies Education 1991 Diploma in Business Economics, Herning Business School (Denmark)

Corporate governance · Vestas annual report 2011 049 Former positions Anders Vedel 1986–1991 Auditor with Krøyer Pedersen (Denmark) Born: 6 March 1957 1991–1993 Financial Controller at Wind Turbine Maintenance Nationality: Danish Corporation (USA) Resident: Denmark Position: Chief Turbines R&D Officer (CTO) and acting Chief Solutions 1993–1994 Financial Controller at Vestas Wind Systems A/S and Services Officer (CSSO), Vestas Wind Systems A/S (Denmark) (Denmark) 2012–. 1994–1995 Financial Controller at Vestas – American Wind Technology, Inc. (USA) Position in Vestas Wind Systems A/S 1995–1999 Group Financial Controller at Vestas Wind Systems A/S Member of the Executive Management since February 2012. (Denmark) 1999–2004 Managing Director of Vestas – American Wind Shareholding Technology, Inc. (USA) Vestas shareholding as per 31 December 2011: 1,141 shares.7) 2004–2012 Executive Vice President and CFO, Vestas Wind Systems A/S (Denmark) Competencies Education 1991–1995 Mechanical Engineer at Ingeniørhøjskolen Horsens Juan Araluce y Martinez de Azagra (Denmark) Born: 17 January 1963 2002 Scandinavian International Management Institute Nationality: Spanish (Denmark) Resident: Spain 2008 Business Program at IMD, International Institute for Position: Chief Sales Officer (CSO), Vestas Wind Systems A/S Management Development (Switzerland) (Denmark) 2012–. Former positions Position in Vestas Wind Systems A/S 1995–2000 Various positions at Vestas Wind Systems A/S Member of the Executive Management since February 2012. (Denmark) 2000–2002 Technical Director, Shareholding IWT-Italian Wind Technology S.r.l. (Italy) Does not hold shares in the company. 2003–2004 Service Manager, Vestas International Wind Technology A/S (Denmark) Competencies 2004–2005 Vice President of Service Northern Europe, Education Vestas Northern Europe AB (Sweden) 1988 Degree in Economics and Business Administration, 2005–2006 Vice President of Operations, Universidad Complutense de Madrid (Spain) Vestas-Americas Wind Technology Inc. (USA) 1992–1995 Doctorate level courses in Economics, ICADE, Madrid 2006–2007 Vice President of CIM, Vestas Technology R&D, (Spain) Vestas Wind Systems A/S (Denmark) 2003–2004 Advanced Management Program, IESE, Barcelona 2007–2012 Senior Vice President, Vestas Technology R&D, (Spain) and Sales and Marketing Leadership Program, Vestas Wind Systems A/S (Denmark) Kellogg School, Chicago (USA) 2007–2012 Managing Director, Vestas Technology R&D, Vestas Technology R&D Chennai Pte. Ltd. (India) Former positions 1988–1989 Business Analyst, Retail Division, BP Spain (Spain) 1989–1991 Retail Network Development Manager, BP Med. (Spain) 1991–1992 Global Customers Service Director, Oil Marketing Unit, BP Oil International (UK) 1992–1993 Temporary Assignment, Polygon Retailing Ltd., (UK) 1993–1995 Planning, Administration, and Systems Development Director/Retail SAP Implementation Director, Retails Division, BP Oil Spain (Spain) 1995–1999 National Business Development and Distributors Network Director, Consumer Industry Division, BP Oil Spain (Spain) 1999–2001 Sales Director, BP Group, Gas and Power Business Spain, Power and Renewables Europe and Africa Business Unit (Spain) 2001–2003 Business Development Director, BP Group, Power and Renewables Europe and Africa Business Unit (Spain) 2004–2007 Gas Performance Unit Leader Spain, BP Group, Gas, Power and Renewables Europe and Africa Business Unit (Spain) 2007–2012 President, Vestas Mediterranean, Vestas Eólica SAU (Spain)

6) The Committee on Corporate Governance’s definition of independency, see vestas.com. 7) The mentioned number of shares includes both own and related parties’ total shareholding. 8) The Danish audit law’s definition of audit members’ independency, see vestas.com.

050 Vestas annual report 2011 · Corporate governance 6) The Committee on Corporate Governance’s definition of independency, see vestas.com. 7) The mentioned number of shares includes both own and related parties’ total shareholding. 8) The Danish audit law’s definition of audit members’ independency, see vestas.com.

Corporate governance · Vestas annual report 2011 051

Consolidated accounts

054 Income statement 055 Statement of comprehensive income 056 Balance sheet 058 Statement of changes in equity 059 Cash flow statement 061 Notes to the consolidated accounts 105 Legal entities 108 Management’s statement 109 The independent auditor’s report Consolidated accounts

Consolidated income statement 1 January – 31 December mEUR Note 2011 2010 Revenue 3, 4 5,836 6,920 Cost of sales 5, 6 (5,111) (5,745) Gross profit 725 1,175

Research and development costs 5, 6, 7 (203) (150) Distribution expenses 5, 6 (208) (206) Administrative expenses 5, 6 (352) (351) Operating profit before special items (38) 468

Special items 5, 8 (22) (158) Operating profit (60) 310

Income from investments in associates 15 1 0 Financial income 9 26 22 Financial expenses 10 (120) (94) Profit before tax (153) 238

Corporation tax 11 (13) (82) Profit for the year (166) 156

Distributed as follows: Shareholders in Vestas Wind Systems A/S (166) 156 (166) 156

Earnings per share (EPS) 12 Earnings per share (EUR) (0.82) 0.77 Earnings per share (EUR), diluted (0.82) 0.77

054 Vestas annual report 2011 · Consolidated accounts Consolidated statement of comprehensive income – 31 December mEUR 2011 2010 Profit for the year (166) 156

Exchange rate adjustment from conversion to EUR 6 (4) Exchange rate adjustments relating to foreign entities 18 42 Fair value adjustments of derivative financial instruments (24) 10 Fair value adjustments of derivative financial instruments transferred to the income statement (cost of sales) (10) 8 Tax on derivative financial instruments and other comprehensive income 8 (6) Other comprehensive income after tax (2) 50 Total comprehensive income (168) 206

Distributed as follows: Shareholders in Vestas Wind Systems A/S (168) 206 (168) 206

Consolidated accounts · Vestas annual report 2011 055 Consolidated balance sheet 31 December – Assets mEUR Note 2011 2010 Goodwill 320 320 Completed development projects 577 169 Software 90 88 Development projects in progress 256 457 Total intangible assets 13 1,243 1,034

Land and buildings 1,020 867 Plant and machinery 387 304 Other fixtures and fittings, tools and equipment 326 248 Property, plant and equipment in progress 165 285 Total property, plant and equipment 14 1,898 1,704

Investments in associates 15 4 4 Other receivables 20 44 25 Deferred tax 16 333 224 Total other non-current assets 381 253

Total non-current assets 3,522 2,991

Inventories 17 2,546 2,735 Trade receivables 18 663 624 Construction contracts in progress 19 147 40 Other receivables 20 395 277 Corporation tax 21 41 64 Cash at bank and in hand 30 375 335 Total current assets 4,167 4,075

Total assets 7,689 7,066

056 Vestas annual report 2011 · Consolidated accounts Consolidated balance sheet 31 December – Equity and liabilities mEUR Note 2011 2010 Share capital 22 27 27 Other reserves 7 9 Retained earnings 2,542 2,718 Total equity 2,576 2,754

Deferred tax 16 12 6 Provisions 23 145 139 Pension obligations 24 2 2 Financial debts 25 914 910 Total non-current liabilities 1,073 1,057

Prepayments from customers 1,865 1,546 Construction contracts in progress 19 38 15 Trade payables 1,563 1,120 Provisions 23 170 223 Financial debts 25 6 4 Other liabilities 26 356 323 Corporation tax 21 42 24 Total current liabilities 4,040 3,255

Total liabilities 5,113 4,312

Total equity and liabilities 7,689 7,066

Consolidated accounts · Vestas annual report 2011 057 Consolidated statement of changes in equity 1 January – 31 December

Other reserves Cash flow Share Translation hedging Retained mEUR capital reserve reserve earnings Total

Equity at 1 January 2011 27 3 6 2,718 2,754

Acquisition of treasury shares 0 0 0 (17) (17) Share based payment 0 0 0 7 7 Total comprehensive income for the year1) 0 24 (26) (166) (168)

Equity at 31 December 2011 27 27 (20) 2,542 2,576

Other reserves Cash flow Share Translation hedging Retained mEUR capital reserve reserve earnings Total

Equity at 1 January 2010 27 (35) (6) 2,556 2,542

Acquisition of treasury shares 0 0 0 0 0 Share based payment 0 0 0 6 6 Total comprehensive income for the year1) 0 38 12 156 206

Equity at 31 December 2010 27 3 6 2,718 2,754

Refer to the parent company's statement of changes in equity on page 115 for information about which reserves are available for distribution. For proposed distribution of profit, refer to page 113 of the parent company's annual accounts.

1) Refer to the consolidated statement of comprehensive income for the specification of the translation and cash flow hedging reserve items relating to total income for the year.

058 Vestas annual report 2011 · Consolidated accounts Consolidated cash flow statement 1 January – 31 December mEUR Note 2011 2010 Profit for the year (166) 156 Adjustments for non-cash transactions 27 366 411 Interest received, etc. 22 22 Interest paid, etc. (60) (49) Corporation tax paid (69) (131) Cash flow from operating activities before change in net working capital 93 409 Change in net working capital 28 747 (353) Cash flow from operating activities 840 56

Purchase of intangible assets (327) (328) Purchase of property, plant and equipment (406) (458) Purchase of other non-current assets (19) (12) Acquisition of enterprise 29 (21) (2) Disposal of property, plant and equipment 12 11 Disposal of other non-current assets 0 0 Cash flow from investing activities (761) (789) Free cash flow 79 (733)

Acquisition of treasury shares (17) 0 Repayment of non-current liabilities 0 (28) Raising of non-current liabilities 4 596 Cash flow from financing activities (13) 568

Change in cash at bank and in hand less current portion of bank debt 66 (165)

Cash at bank and in hand less current portion of bank debt at 1 January 332 479 Exchange rate adjustments of cash at bank and in hand (28) 18 Cash at bank and in hand less current portion of bank debt at 31 December 370 332

The balance is specified as follows: Cash at bank and in hand without disposal restrictions 351 325 Cash at bank and in hand with disposal restrictions 30 24 10 Total cash at bank and in hand 375 335 Current portion of bank debt 25 (5) (3) 370 332

Consolidated accounts · Vestas annual report 2011 059 Notes to the consolidated accounts

Note Page

1 Group accounting policies...... 061 2 Critical accounting judgements and estimates...... 068 3 Segment information...... 070 4 Revenue...... 072 5 Amortisation, depreciation and impairment losses...... 072 6 Staff costs...... 073 7 Research and development costs...... 073 8 Special items...... 074 9 Financial income...... 074 10 Financial expenses...... 074 11 Corporation tax...... 075 12 Earnings per share (EPS)...... 075 13 Intangible assets...... 076 14 Property, plant and equipment...... 078 15 Investments in associates...... 079 16 Deferred tax...... 079 17 Inventories...... 080 18 Trade receivables...... 080 19 Construction contracts in progress...... 081 20 Other receivables...... 081 21 Corporation tax...... 081 22 Share capital...... 082 23 Provisions...... 083 24 Pension obligations...... 085 25 Financial debts...... 087 26 Other liabilities...... 088 27 Adjustment for non-cash transactions...... 088 28 Change in net working capital...... 088 29 Acquisition of enterprises...... 089 30 Cash at bank and in hand...... 089 31 Fees to auditors appointed by the Annual General Meeting...... 090 32 Management's option programme and shareholdings...... 090 33 Related party transactions...... 094 34 Government grants...... 094 35 Mortgages and security...... 095 36 Contractual obligations...... 095 37 Contingent liabilities and contingent assets...... 096 38 Derivative financial instruments, risk and capital management...... 096 39 Subsequent events...... 104 40 New accounting regulations...... 104

060 Vestas annual report 2011 · Consolidated accounts 1 Group accounting policies

The Consolidated accounts have been prepared in accordance with the Inter- Cost is stated as the fair value of the assets transferred, obligations under- national Financial Reporting Standards (IFRS) as adopted by the European taken and shares issued. Cost includes the fair value of any earn-outs. Union. Expenses related to the acquisition are recognised in the period in which they are incurred. Identifiable assets, liabilities and contingent liabilities (net The parent company’s annual accounts have been prepared in accordance assets) relating to the enterprise acquired are recognised at the fair value at with the provisions of the Danish Financial Statements Act applying to listed the date of acquisition calculated in accordance with the Group accounting companies. policies.

The annual report has been prepared in accordance with the additional Dan- In connection with every acquisition, goodwill and a non-controlling interest ish disclosure requirements for annual reports of listed companies. Refer- (minority) are recognised according to one of the following methods: ence is made to the disclosure requirements for annual reports of listed companies laid down by the NASDAQ OMX Copenhagen, the Danish Financial 1) Goodwill relating to the enterprise acquired comprises a positive differ- Statements Act and the Danish Statutory Order on Adoption of IFRS issued ence, if any, between the total fair value of the enterprise acquired and pursuant to the Danish Financial Statements Act. the fair value of the total net assets for accounting purposes. The non- controlling interest is recognised at the share of the total fair value of the Basis of preparation enterprise acquired (full goodwill). The annual report has been prepared under the historical cost method, except for the derivative financial instruments. 2) Goodwill relating to the enterprise acquired comprises a positive difference, if any, between cost and the fair value of the Group’s share of the net The accounting policies as described below have been applied consis tently assets for accounting purposes of the acquired enterprise at the date of over the financial year and in respect of the comparative figures. acquisition. The non-controlling interest is recognised at the proportionate share of the net assets acquired (proportionate goodwill) The accounting policies remain unchanged from 2010. Goodwill is recognised in intangible assets. Goodwill is not amortised, but is The annual report is presented in million EUR. valued once a year and in connection with indication of impairment to determine whether it has been subject to any impairment. If so, write-down for Implementation of new International Financial Reporting Standards impairment is made to the lower recoverable amount of the asset. With effect from 1 January 2011, the Vestas Group implemented amendments to IAS 24 regarding related party disclosures, to IAS 32 regarding Sold or liquidated enterprises are recognised up to the date of disposal. Any financial instruments presentation, to IFRIC 14 regarding the limit on a gain or loss compared to the carrying amount at the date of disposal is rec- defined benefit asset, to IFRIC 19 regarding extinguishing financial liabilities ognised in the income statement to the extent the control of the subsidiary is with equity instruments and improvements to IFRSs (May 2010). also transferred.

The amendments and interpretations have not affected recognition and Comparative figures are restated for newly acquired, sold or liquidated enter- measurement or result in changes to the Group’s accounting policies and prises. changes to the note disclosures. Translation policies The amendments and interpretations do not affect earnings per share and Functional currency and presentation currency diluted earnings per share. Assets, liabilities and transactions of each of the reporting entities of the Group are measured in the currency of the primary economic environment in The description of new standards and interpretations that are not yet which the entity operates (the functional currency). Transactions in curren- effective has been included in note 40 to the consolidated accounts. cies other than the functional currency are transactions in foreign currencies. The functional currency of the parent company is Danish kroner (DKK); how- Consolidated accounts and business combinations ever, due to the Group’s international relations, the consolidated accounts The consolidated accounts comprise Vestas Wind Systems A/S (the parent are presented in euro (EUR). company) and the enterprises in which Vestas Wind Systems A/S directly or indirectly holds more than 50 per cent of the votes or otherwise exer- Translation into presentation currency cises control (subsidiaries). Vestas Wind Systems A/S and its subsidi aries The balance sheet is translated into the presentation currency at the EUR together are referred to as the Group. rate at the balance sheet date. The transaction date rates are based on average rates for the individual months to the extent that this does not materially Enterprises that are not subsidiaries, but in which the Group holds between distort the presentation of the underlying transaction. 20 per cent and 50 per cent of the votes or otherwise exercises significant influence on operational and financial management, are classified as associ- Translation of transactions and amounts ates. Transactions in foreign currencies are initially translated into the functional currency at the exchange rates at the dates of transaction. Exchange adjust- An overview of Group legal entities is provided on pages 105–107. ments arising due to differences between the transaction date rates and the rates at the dates of payment are recognised as financial income or financial The consolidated accounts are prepared from the financial statements of the expenses in the income statement. Receivables, payables and other mon- parent company and subsidiaries by combining accounting items of a uniform etary items in foreign currencies not settled at the balance sheet date are nature with subsequent elimination of intercompany income and expenses, translated at the exchange rates at the balance sheet date. Exchange adjust- shareholdings, intercompany balances and dividends as well as unrealised ments arising due to differences between the rates at the balance sheet date profits and losses on transactions between consolidated enterprises. and the transaction date rates are recognised as financial income or financial expenses in the income statement. The consolidated accounts are based on financial statements prepared under the accounting policies of the Vestas Group. Translation of Group enterprises On recognition in the consolidated accounts of foreign enterprises with a Newly acquired or newly founded subsidiaries are recognised from the date functional currency that differs from the presentation currency of the Group, of obtaining the control of the enterprise acquired (date of acquisition). Upon income statements are translated at transaction date rates, and balance acquisition of subsidiaries the acquisition method is applied. sheet items are translated at the exchange rates at the balance sheet date.

Consolidated accounts · Vestas annual report 2011 061 The transaction date rates are based on average rates for the individual Changes in the fair values of derivative financial instruments that do not qua months to the extent that this does not materially distort the presentation of lify for hedge accounting are recognised as they arise in financial income and the underlying transaction. Exchange adjustments arising on the translation expenses in the income statement. of the opening equity of foreign enterprises at exchange rates at the balance sheet date and on the translation of income statements from transac- Segment information tion date rates to exchange rates at the balance sheet date are recognised The reportable segments identified make up most of the Group’s external directly in equity under the separate translation reserve. revenue, which is solely derived from the sale of wind turbines and associated service activity. The reportable segments are an aggregation of operat- Exchange adjustments of balances with foreign enterprises that are treated ing segments within the Vestas Group as prescribed by IFRS 8. The report- as part of the total net investment in the enterprise in question are recog able segments are determined based on the Group’s management structures nised directly in equity in the consolidated accounts. Similarly, exchange and the consequent reporting to the Chief Operating Decision Maker (CODM), gains and losses on the part of loans and derivative financial instruments the Executive Management. Thus, they are determined based on both geo- entered into in order to hedge the net investment in foreign enterprises with graphical segments and business units (production and sales business units) another functional currency than the presentation currency of the Group, of the Group. Service activities is a separate reportable segment. The remain- which effectively hedge against corresponding exchange gains/losses on ing operating segments not included in the identified reportable segments the net investment in the enterprise, are recognised directly in equity under a are included under all other operating segments. separate translation reserve in the consolidated accounts. The production business units are classified as one reportable segment On recognition in the consolidated accounts of associates with functional because the revenues generated by these units are driven by the Group’s currencies that differ from the presentation currency of the Group, the share transfer pricing policy and are consistent across the Group. Secondly, Vestas of results for the year are translated at average exchange rates, and the only sells one product - wind turbines - and revenue is recognised largely shares of equity including goodwill are translated at the exchange rates at based on the delivery of a complete wind turbine not on the basis of the the balance sheet date. Exchange adjustments arising on the translation of independent sale of the three main products (blades, nacelle and tower) that the share of the opening equity of foreign associates at exchange rates at make up the wind turbine. the balance sheet date and on the translation of the share of results for the year from average exchange rates to exchange rates at the balance sheet The measure of EBIT, revenues and expenses included in segmental report- date are recognised directly in equity under the separate translation reserve. ing are the same as those used in the consolidated accounts.

On full or partial disposal of foreign entities or on repayment of balances Income and expenses included in profit for the year are allocated to the treated as part of the net investment, the share of the accumulated exchange extent that they can be directly or indirectly attributed to the segments on adjustments recognised directly in and attributable to equity, is recognised in a reliable basis. Expenses allocated as either directly or indirectly attribut- the income statement at the same time as any profit or loss on the disposal. able comprise of cost of sales, research and development costs, distribution expenses and administrative expenses. Derivative financial instruments Derivative financial instruments are recognised and measured in the balance The income and expenses allocated as indirectly attributable to the seg- sheet at fair value. Positive and negative fair values of derivative financial ments are allocated by means of sharing keys determined on the basis of the instruments are included in other receivables and other payables, respec- utilisation of key resources in the segment. tively, and positive and negative values are set off only where the enterprise has the right and intention to settle several financial instruments on a net Non-current segment assets comprise the non-current assets used directly basis. for segment operations, including intangible assets, property, plant and equipment and investments in associates. A currency element of sales agreement is treated as a stand alone derivative financial instrument if the currency of the contract is neither the functional Current segment assets comprise the current assets used directly for seg- currency of Vestas or the counterpart or a commonly used currency in the ment operations, including inventories, trade receivables, other receivables country in which the sales take place. and prepayments.

Fair values of derivative financial instruments are calculated on the basis of Inter-company balances primarily comprise arms’ length transactions market data as well as recognised valuation methods. between operating segments making up the reportable segments. These balances are eliminated to arrive at the figures in the consolidated accounts. Changes in the fair values of derivative financial instruments that are designated and qualify as fair value hedges of a recognised asset or a recog nised Share-based payments liability are recognised in the income statement as are any changes in the The value of the services received in exchange for the granting of options is value of the hedged asset or the hedged liability related to the hedged risk. measured at the fair value of the options.

According to the agreements entered into the hedging of future cash flows, Equity settled share options granted to employees are measured at fair value except for currency hedging, are treated as fair value hedges of a recognised at the time of granting and are recognised in staff expenses in the income asset or a recognised liability. statement over the vesting period. The counter item is recognised directly in equity. Changes in the fair values of derivative financial instruments that are designated and qualify as hedges of expected future cash flows and effectively On initial recognition of the share options, the number of options expected hedge changes in the value of the hedged item are recognised in comprehen- to vest is estimated. Subsequently, the estimate of the number of vested sive income. Profits or losses on such hedging transactions are transferred options is revised so that the total recognised is based on the actual number from comprehensive income on realisation of the hedged item and are recog- of options vested. nised in the same entry as the hedged item. However, on hedging of proceeds from future borrowing, profits or losses on hedging transactions are trans- The fair value of the options granted is estimated using an option pricing ferred from equity over the term of the loan. model (Black-Scholes). In determining fair value, terms and conditions relating to the share options granted are taken into account. Changes in the fair values of derivative financial instruments, designated and qualify as hedges of net investments in foreign subsidiaries or associates Government grants and effectively hedge against exchange adjustments in these enterprises, Government grants comprise grants for investments, research and develop- are recognised directly in equity under the cash flow hedging reserve. ment projects, etc. Grants are recognised when there is reasonable certainty

062 Vestas annual report 2011 · Consolidated accounts that they will be received. Borrowing costs related to construction of qualifying assets are recognised as part of the assets’ cost price. Grants for investments and capitalised development projects are set off against the cost of the assets to which the grants relate. Other grants are Corporation tax recognised in development costs in the income statement so as to offset the Tax for the year consists of current tax and deferred tax for the year. The tax expenses for which they compensate. attributable to the profit for the year is recognised in the income statement, whereas the tax attributable to equity transactions is recognised directly in Income statement equity. Revenue Revenue comprises sale of wind turbines and wind power systems, after- To the extent that the Vestas Group achieves any tax allowance in the cal sales service and sale of spare parts. culation of the taxable income in Denmark or abroad as a result of share- based payment schemes, the tax effect of the schemes is recognised in Sale of individual wind turbines and small wind power systems based on current tax for the year. However, where the total tax allowance exceeds the standard solutions (supply-only and supply-and-installation projects) as well total cost of the scheme for accounting purposes, the tax effect of the excess as spare parts sales are recognised in the income statement provided that allowance is recognised directly in equity. risk has been transferred to the buyer prior to year end, and provided that income can be measured reliably and is expected to be received. Contracts Balance sheet to deliver large wind power systems with a high degree of custom isation are Intangible assets recognised in revenue as the systems are constructed based on the stage Goodwill of completion of the individual contract (turnkey projects). Where the profit Goodwill is initially recognised in the balance sheet as described under con- from a contract cannot be estimated reliably, revenue is only recognised solidated accounts and business combinations. Subsequently, goodwill is equalling the expenses incurred to the extent that it is probable that the measured at this value less accumulated impairment losses. Goodwill is not expenses will be recovered. amortised.

Service sales, comprising service and maintenance agreements as well as The carrying amount of goodwill is allocated to the Group’s cash-generating extended warranties regarding wind turbines and wind power systems sold, units. Identification of cash-generating units is based on management are recognised in the income statement over the term of the agreement as structure and internal financial management. Management assesses that the agreed services are provided. the smallest cash-generating units to which the carrying amount of goodwill can be allocated are the Group’s geographical segments, Europe and Africa, Cost of sales Americas and Asia Pacific. Cost of sales, including warranty costs, comprise the expenses incurred to achieve revenue for the year. Cost comprises raw materials, consumables, The carrying amount of goodwill is tested at least annually for impairment, direct labour costs and indirect expenses such as salaries, rental and lease together with the other non-current assets of the cash-generating unit to expenses as well as depreciation of production facilities. which goodwill has been allocated, and if the recoverable amount is lower than the carrying amount, goodwill is written down to its lower recoverable Furthermore, provisions for losses on construction contracts are included in amount in the income statement. cost of sales. The recoverable amount is usually calculated as the net present value of Research and development costs expected future net cash flows from the enterprise or the activity (cash- Research and development costs comprise development costs that do not generating unit) to which the goodwill has been allocated. Alternatively, the qualify for capitalisation, as well as amortisation of and impairment losses on recoverable amount is calculated as fair value less costs to sell. Impairment capitalised development costs. losses on goodwill are recognised in a separate line in the income statement.

Distribution expenses Development projects and software Distribution expenses comprise expenses incurred for the sale and distribu- Development projects that are clearly defined and identifiable and inrespect tion of products etc. sold during the year. Also included are expenses relating of which technical feasibility, sufficient resources and a potential future to employees and depreciation. market or application in the enterprise can be demonstrated, and where it is the intention to manufacture, market or use the project, are recognised as Administrative expenses intangible assets. This applies if cost can be measured reliably and sufficient Administrative expenses comprise expenses incurred during the year for certainty exists that future earnings or the net selling price can cover cost management and administration of the Group, including expenses for admin- of sales, distribution and administrative expenses as well as research and istrative staff, Management, office premises, office expenses and depreciation. development costs. At Vestas this is underpinned by a gate process, where these judgements are made on specific gates. Other development costs are Special items recognised in the income statement as incurred. Special items comprise material amounts that are not attributable to normal operations. This includes costs related to significant organisational restruc- Recognised development costs are measured at cost less accumulated turing and adjustments to production capacity and the product programme. amortisation and impairment losses. Development costs comprise salaries, The costs will include the write-down of intangible and tangible assets as amortisation and other expenses attributable to the Group’s development well as provisions for reorganisations and any reversal of these. activities.

Income from investments in associates Following completion of the development work, development projects are The proportionate share of the results of associates after tax and after elimi- amortised on a straight-line basis over the estimated useful life. The amorti- nation of the proportionate share of intercompany profits/losses is recog- sation period is three to five years. The basis of amortisation is calculated net nised in the consolidated income statement. of any impairment losses.

Financial income and expenses The carrying amount of development projects in progress is tested for Financial income and expenses comprise interest, exchange gains and impairment at least annually and where the carrying amount exceeds the net losses and impairment losses on securities, debt and foreign currency trans- present value of the future net cash flows expected to be generated by the actions, amortisation of financial assets and liabilities, including finance development project, the project is written down to its recoverable amount in lease obligations, as well as extra payments and repayments under the on- the income statement. account taxation scheme.

Consolidated accounts · Vestas annual report 2011 063 Patents and licences included in development projects are measured at cost Depreciation is recognised in the income statement as cost of sales, research less accumulated amortisation and impairment losses. Patents and licences and development costs, distribution expenses as well as administrative are amortised over the patent period or term of agreement, the life of the expenses to the extent that depreciation is not included in the cost of assets development project or the estimated useful life, whichever is shorter. The of own construction. basis of amortisation is calculated net of any impairment losses. Leases Software is measured at cost less accumulated amortisation and impairment For accounting purposes, lease obligations are classified as either finance or losses. Cost includes both direct internal and external expenses. Software is operating lease obligations. amortised on a straight-line basis over five years. The basis of amortisation is calculated net of any impairment losses. A lease is classified as a finance lease when it transfers substantially all risks and rewards of the leased asset as if the asset had been owned. Other leases Borrowing costs that are directly attributable to the acquisition, construc- are classified as operating leases. tion or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognised as expenses in the financial year in Finance lease assets are capitalised under property, plant and equipment which they are incurred. A qualifying asset is an asset that necessarily takes and are depreciated over their expected useful lives in accordance with the a substantial period, more than three months, of time to get ready for its periods listed above. The corresponding finance lease obligations are recog- intended use or sale. nised in liabilities. Operating lease expenses are recognised on a straight- line basis in the income statement over the lease term. Property, plant and equipment Land and buildings, plant and machinery as well as other fixtures and fit- Impairment of assets tings, tools and equipment are measured at cost less accumulated deprecia- Goodwill and intangible assets with indefinite useful lives are tested annu- tion and impairment losses. ally for impairment, initially before the end of the year of acquisition. Simi- larly, development projects in progress are tested annually for impairment. Cost comprises the cost of acquisition and expenses directly related to the acquisition up until the time when the asset is ready for use. In the case of The carrying amount of goodwill is tested for impairment together with assets of own construction, cost comprises direct and indirect expenses for the other non-current assets of the cash-generating unit to which goodwill materials, components, sub-suppliers and labour. Estimated expenses for has been allocated, and if the recoverable amount is lower than the carry- dismantling and disposing of the asset and for re-establishment are added ing amount, goodwill is written down to its lower recoverable amount in the to cost to the extent that they are recognised as a provision. Where individ- income statement. Impairment losses on goodwill are recognised in a sepa- ual components of an item of property, plant and equipment have different rate line in the income statement. useful lives, the cost of the item is broken down into separate components which are depreciated separately. Deferred tax assets relating to tax loss carry-forwards are reviewed on an annual basis and are only recognised when it is probable that they will be The cost of assets held under finance leases is calculated at the lower of the utilised in future periods. fair value of the leased asset and the net present value of the future minimum lease payments computed by applying the interest rate implicit in the The carrying amounts of other non-current assets are reviewed on an annual lease or an approximated value thereof as the discount rate. basis to determine whether there is any indication of impairment. If so, the recoverable amount of the asset is calculated. The recoverable amount is the Subsequent expenses, e.g. in connection with the replacement of components higher of the fair value of the asset less estimated costs to sell and value in use. of an item of property, plant and equipment, are recognised in the carrying amount of the asset in question when it is probable that the expenses Value in use is calculated as the net present value of expected future net incurred will result in future economic benefits to the Group. The carrying cash flows from the asset or the cash-generating unit to which the asset has amount of the replaced components is derecognised in the balance sheet and been allocated. recognised in the income statement. All other expenses incurred for ordinary repairs and maintenance are recognised in the income statement as incurred. Any impairment loss is recognised where the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. Impairment Borrowing costs that are directly attributable to the acquisition, construc- losses are recognised in the income statement in cost of sales, research and tion or production of a qualifying asset form part of the cost of that asset. development costs, distribution expenses and administrative expenses. All other borrowing costs are recognised as expenses in the financial year in Impairment losses on goodwill are presented in a separate line in the income which they are incurred. A qualifying asset is an asset that necessarily takes statement. a substantial period, more than three months, of time to get ready for its intended use or sale. Impairment losses on goodwill are not reversed. Impairment losses on other assets are reversed only to the extent of changes in the assumptions and Depreciation is calculated on a straight-line basis over the expected useful estimates underlying the impairment calculation. lives of the assets, which are: Impairment losses are reversed only to the extent that the new carrying Buildings ��20–40 years amount of the asset does not exceed the carrying amount of the asset after Building installations ��15–25 years depreciation/amortisation had the asset not been impaired. Plant and machinery ��3–10 years Power-operated tools of own construction and newly Investments in associates manufactured test and exhibition turbines ��3–5 years Investments in associates are measured in the balance sheet at the propor- Other fixtures and fittings, tools and equipment ��3–5 years tionate share of the net asset value of the associates calculated under the Land is not depreciated. Group’s accounting policies with deduction or addition of a proportionate share of unrealised intercompany profits and losses and with addition of the The basis of depreciation is calculated taking into account the residual value carrying amount of goodwill. of the asset less any impairment losses. The residual value is determined at the time of acquisition and is reassessed annually. Where the residual value Associates with negative net asset values are measured at EUR 0. Any legal exceeds the carrying amount of the asset, depreciation is discontinued. or constructive obligation of the Group to cover the negative balance of the associate is recognised in provisions. If the depreciation period or the residual value has changed, the effect on Receivables from associates are measured at amortised cost. Provisions are depreciation is recognised prospectively as a change of accounting estimate. made for bad debts.

064 Vestas annual report 2011 · Consolidated accounts Inventories Annual General Meeting (declaration date). The dividend distribution pro- Inventories are measured at the lower of cost, using the weighted average posed for the year is disclosed as a separate equity item. method, and net realisable value (NRV). Interim dividend is recognised as a liability at the time of resolution. The cost of goods for resale, duties, raw materials and consumables comprises direct costs and transportation expenses. Translation reserve The translation reserve in the consolidated accounts comprises exchange The cost of work in progress comprises the cost of raw materials, con adjustments arising on the translation of the financial statements of foreign sumables, direct labour and indirect production costs. Indirect production enterprises from their functional currencies into the presentation currency of costs comprise materials and labour costs as well as maintenance and the Group (EUR). depreciation of the machinery, factory buildings and equipment used in the manufacturing process together with costs of factory administration and Upon full or part realisation of the net investment, exchange adjustments are management. recognised in the income statement.

The NRV of inventories is measured at sales price less costs of completion Cash flow hedging reserve and selling costs. NRV is determined taking into account marketability, obso- The cash flow hedging reserve in the consolidated accounts comprises gains lescence and development in the expected selling price. and losses on fair value adjustments of forward exchange contracts concerning future transactions as well as hedging in connection with commodities. Trade receivables Trade receivables and other receivables are measured at amortised cost. Pro- The cash flow hedging reserve also includes fair value adjustments of inter visions are made for bad debts. est rate swaps, outstanding at the balance sheet date, entered into to hedge against the interest rate risks on loans with floating interest rates. Prepayments recognised as assets comprise prepaid expenses concerning subsequent financial years and are measured at cost. Corporation tax and deferred tax Current tax liabilities and receivables are recognised in the balance sheet at Construction contracts in progress the amounts calculated on the taxable income for the year adjusted for tax Construction contracts in progress comprises agreements to deliver large on taxable incomes for prior years and for taxes paid on account. wind power systems with a high degree of customisation (turnkey projects). Deferred tax is measured using the balance sheet liability method in respect Construction contracts in progress are measured at the selling price of the of all temporary differences between the carrying amount and the tax base work performed based on the stage of completion less interim billing and of assets and liabilities. Deferred tax is, however, not recognised in respect of expected losses. temporary differences concerning goodwill not deductible for tax purposes, office premises and other items – apart from business acqui sitions – where The stage of completion is measured by the proportion that the contract temporary differences have arisen at the time of acquisition without affect- expenses incurred to date bear to the estimated total contract expenses. ing the profit for the year or the taxable income. In cases where the computa- Where it is probable that total contract expenses will exceed total revenues tion of the tax base may be made according to different tax rules, deferred from a contract, the expected loss is recognised immediately as an expense tax is measured on the basis of Management’s intended use of the asset and in the income statement. settlement of the liability, respectively.

The value of self-constructed components is recognised in ”Construction Deferred tax assets, including the tax base of tax loss carry-forwards, are contracts in progress” upon delivery of the components to the specific wind recognised in other non-current assets at the value at which the asset is power systems construction site. expected to be realised, either by elimination of tax on future earnings or by set-off against deferred tax liabilities within the same legal tax entity and Where it is probable that the total expenses of a construction contract in jurisdiction. progress will exceed total revenues from the contract, the expected loss for construction contracts in progress is recognised immediately as an expense Adjustment are made to deferred tax to take account of the elimination of and an obligation. unrealised intercompany profits and losses.

Prepayments from customers are recognised as liabilities. Deferred tax is measured on the basis of the tax rules and tax rates of the respective countries that will be effective when the deferred tax is expected A construction contract in progress for which the selling price of the work to crystallise as current tax based on the legislation at the balance sheet performed exceeds interim billings and expected losses is recognised as date. Changes to deferred tax due to changes to tax rates are recognised in an asset. Construction contracts in progress for which interim billings and the income statement except for items recognised directly in equity. expected losses exceed the selling price are recognised as a liability. Provisions Expenses relating to sales work and the securing of contracts are recognised Provisions are recognised when – in consequence of an event that has in the income statement as incurred. occurred before or on the balance sheet date – the company has a legal or constructive obligation and it is probable that there will be an outflow of the Equity Group’s financial resources to settle the obligation. Treasury shares Purchase and sales sums as well as dividends relating to treasury shares are Provisions are measured at Management’s best estimate of the expen ses recognised directly in retained earnings in equity. A reduction of capital by required to settle the obligation. Discounting is applied where relevant. cancellation of treasury shares reduces the share capital by an amount equal Warranty provisions comprise warranty obligations made in respect of to the nominal value of the shares. delivered wind turbines and wind power systems based on experience. At the start of the warranty period, calculated provisions are made for each type Proceeds from the sale of treasury shares and the issuing of new shares of wind turbine and are released to the income statement over the warranty in Vestas Wind Systems A/S relating to the exercise of share options or period as warranty costs are incurred. Subsequently, periodic reviews are per- employee shares are recognised directly in equity. formed based on an overall assessment of the need for provisions.

Dividend Restructuring costs are recognised as liabilities when a detailed, formal A proposed dividend is recognised as a liability at the time of adoption at the restructuring plan has been announced to those affected by no later than the

Consolidated accounts · Vestas annual report 2011 065 balance sheet date. On acquisition of enterprises, restructuring provisions in Other debt the acquired enterprise are recognised in goodwill only where a restructuring Other debts are measured at amortised cost. obligation relating to the acquired enterprise exists at the time of acquisition. Deferred income is measured at cost and comprises payments received in respect of income in subsequent years. A provision for loss-making contracts is made where the expected benefits to the Group from the contract are lower than the unavoidable costs of meeting Cash flow statement obligations under the contract. Expected losses on construction contracts in The cash flow statement shows the Group’s cash flows for the year, broken progress are, however, recognised in construction contracts in progress. down by operating, investing and financing activities, changes for the year in cash and cash equivalents as well as the Group’s cash and cash equivalents Pension obligations at the beginning and end of the year. Obligations relating to defined contribution plans where the Group continuously makes fixed pension contributions to independent pension funds are Cash flows relating to acquired enterprises are recognised from the date of recognised in the income statement in the period to which they relate, and acquisition. Cash flows relating to enterprises disposed of are recognised any contributions outstanding are recognised in the balance sheet in other until the date of disposal. payables. Cash flows from operating activities For defined benefit plans, an annual actuarial calculation is made of the net Cash flows from operating activities are calculated as the net profit/loss present value of the future benefits under the defined benefit plan. Net pres- for the year adjusted for non-cash operating items such as depreciation, ent value is calculated based on assumptions of the future develop ment in amortisation and impairment losses, provisions and changes in working e.g. salary level, interest rates, inflation and mortality. The net present value capital, interest received and paid and corporation tax paid. Working capital is calculated only for benefits earned by employees from their employment comprises current assets less short-term debt, which does not include cur- to date with the Group. The actuarially calculated net present value less the rent bank loans. fair value of any plan assets is recognised in the balance sheet in pension obligations in accordance with the corridor method. Cash flows from investing activities Cash flows from investing activities comprise cash flows from business In the income statement, the pension expense for the year is recognised acquisitions and sales and from acquisitions and disposals of intangible based on the actuarial estimates and financial expectations at the beginning assets, property, plant and equipment as well as other non-current assets. of the year. Furthermore, a share of the accumulated actuarial gains or losses The cash flow effect of business acquisitions and sales is shown separately. at the beginning of the financial year is recognised if it exceeds the higher of 10 per cent of the pension obligations and 10 per cent of the fair value of The establishment of finance leases are treated as non-cash transactions. the pension assets. The amount is recognised in the income statement over the employees’ estimated average remaining period of employment with Cash flows from financing activities the Group. The non-recognised part of actuarial gains/losses is disclosed in Cash flows from financing activities comprise changes to the amount or the notes. Upon the change to IFRS, accumulated actuarial gains and losses composition of the Group’s share capital and related expenses as well as the were fully recognised in the opening balance sheet at 1 January 2005. raising of loans, repayment of interest-bearing debt, acquisition of shares for treasury and sale of treasury shares together with distribution of dividends In the event of changes in benefits payable for employees’ past services to to shareholders. the Group, a change is made to the actuarially calculated net present value, which is classified as past service cost. Past service cost is charged to the Cash flows from finance lease assets are recognised as interest payments income statement immediately if the employees have already earned the and repayments of debts. right to the changed benefit. Otherwise, past service cost is recognised in the income statement over the period in which the employees earn the right to Cash at bank and in hand the changed benefit. Cash at bank and in hand comprise cash at bank and in hand and current bank debt. Where a pension plan constitutes a net asset, the asset is recognised only to the extent that it offsets non-recognised actuarial losses, future repayments Assets and short term debts that are included as cash at hand and in bank in from the plan, or if it will lead to a reduction in future contributions under the the cash flow statement are those included in the Group’s cash management. plan.

Other long-term staff benefits are similarly recognised by using an actuarial calculation, but without applying the corridor method. Accordingly, all actuarial gains and losses are recognised immediately in the income statement. Other long-term staff obligations include anniversary bonuses.

Financial debts Loans from credit institutions, etc. are recognised initially at the fair value of the proceeds received net of transaction expenses incurred. Subsequently, the loans are measured at amortised cost using the effective interest method. Accordingly, the difference between the proceeds and the nominal value is recognised in financial expenses in the income statement over the loan period.

Financial debts also include the capitalised remaining lease obligations on finance leases measured at amortised cost.

Prepayments from customers Prepayments from customers recognised in liabilities are measured at cost and comprise prepayments received for wind turbines or wind power systems ordered but not yet delivered and service prepayments received in respect of wind turbines and wind power systems delivered.

066 Vestas annual report 2011 · Consolidated accounts Glossary

Financial ratios Terminology used in accounting policies

EBIT margin: Profit/loss before income from associates, financial income IFRS: International Financial Reporting Standards and expenses and tax as a percentage of revenue. IAS: International Accounting Standards EBITDA margin: Profit/loss before financial income and expenses, depreciation and amortisation, income from associates, financial income and IASB: International Accounting Standards Board expenses and tax as a percentage of revenue. IFRIC/SIC: International Financial Reporting Interpretations Committee/ Gearing (%): Interest-bearing liabilities at year end divided by equity at Standing Interpretations Committee year-end.

Gross margin (%): Gross profit/loss as a percentage of revenue.

Net working capital: Inventories, trade receivables, construction contracts in progress, other receivables minus trade and other payables, prepayments from customers and construction contracts in progress.

Net interest-bearing debt/EBITDA: Net interest-bearing debt divided by profit/loss before financial income and expenses, depreciation and amortisation.

Return on equity (%): Profit/loss after tax for the year divided by average equity.

Return on invested capital (ROIC) (%): Operating profit/loss after tax (effective tax rate) as a percentage of average property, plant and equipment and intangible assets, inventories and receivables less non-interest bearing debt including provisions.

Solvency ratio (%): Equity at year end divided by total assets.

Share ratios

Book value per share: Equity at year end divided by the number of shares at year-end.

Cash flow from operating activities per share: Cash flows from operating activities divided by average number of shares.

Dividend per share: Dividend percentage multiplied by the nominal value of the share.

Earnings per share (EPS): Profit/loss for the year divided by the average number of shares in circulation.

Payout ratio: Total dividend distribution divided by profit/loss for the year.

P/E ratio: The official closing price on the NASDAQ OMXCopen hagen divided by earnings per share for the year.

Price/book value: The official closing price on the NASDAQ OMX Copenhagen divided by year-end book value per share.

Consolidated accounts · Vestas annual report 2011 067 2 Critical accounting judgements and estimates

When preparing the annual report of the Vestas Group, Management makes For further information on warranty provisions and related product risks, a number of accounting estimates and assumptions which form the basis of reference is made to page 16 of the Management report and to note 23 to recognition and measurement of the Group's assets and liabilities. The most the consolidated accounts. significant accounting estimates and judgements are described below. The Group's accounting policies are described in detail in note 1 to the consoli- Management assesses the likely outcome of pending and future nego dated accounts. tiations with sub-suppliers for compensation. Compensation from sub- suppliers may be recognised only when a written agreement with the sub- Critical judgements supplier has been made. Use of percentage-of-completion method Management performs critical accounting estimates in connection with The carrying amount of warranty provisions at 31 December 2011 is EUR income-recognition. Provided that certain criteria in respect of project com 249m (2010: EUR 283m). plexity, etc. are met, revenue from projects in progress is recognised under the percentage-of-completion method corresponding to the selling price Impairment of assets of the work performed based on the stage of completion (turnkey projects). Goodwill Where projects do not qualify for recognition under the percentage-of-com- In the annual impairment test of goodwill, an estimate is made to determine pletion method, total revenue is not recognised until the point in time when how parts of the enterprise (cash-generating units) related to the goodwill the risk is transferred to the buyer (supply-only and supply-and-installation will be able to generate sufficient future positive net cash flows to support projects). the value of goodwill, trademarks with an indefinite useful life and other net assets of the enterprise in question. Delays, etc. may result in material timing deviations in the Group's revenue recognition, and thus earnings, compared to expectations. The estimate of the future free net cash flows is based on budgets and business plans for the coming five years and on projections for subsequent Critical estimates years. Key parameters are revenue development, EBIT, proposed capital The calculation of the carrying amounts of certain assets and liabilities expenditure as well as growth expectations for the following years. Budgets requires judgements, estimates and assumptions relating to future events. and business plans for the coming five years are based on specific future business initiatives for which the risks relating to key parameters have been The estimates and assumptions made are based on experience and other assessed and recognised in estimated future free cash flows. Projections for factors that Management considers reasonable in the circumstances, but years following the next five-year period are based on general expectations that are inherently uncertain and unpredictable. The assumptions may be and risks. incomplete or inaccurate and unexpected events or circumstances, may arise. Furthermore, the company is subject to risks and uncertainties which The discount rates used to calculate the recoverable amount are before tax may result in actual amounts deviating from these estimates. Special risks and reflect the risk-free interest rate of the individual geographical segments of the Vestas Group have been described on page 27 of the Management and related risk. The proportion of equity in relation to the Group's future report, and in the individual notes to the consolidated accounts. capital structure is expected to continue to be high.

It may be necessary to change estimates made previously due to changes in For a description of the impairment test of intangible assets, refer to note 13 the assumptions on which the previous estimates were based or due to new to the consolidated accounts. knowledge or subsequent events. The carrying value of goodwill at 31 December 2011 is EUR 320m (2010: Warranty provisions EUR 320m). The product warranties, which in the great majority of cases cover component defects, functional errors and any financial losses suffered by the Development projects customer in connection with unplanned suspension of operations, are usu- Finished development projects are reviewed on an annual basis to deter ally granted for a two-year period from delivery of the turbine. In certain mine whether there is any indication of impairment. If this is indicated, an cases, a warranty of up to five years is granted. For the customer, the specific impairment test is carried out for the individual development projects. For warranty period and the specific warranty terms are part of the basis of the development projects in progress, however, an annual impairment test is individual contract. always performed. The impairment test is performed on the basis of various factors, including future use of the project, the fair value of the estimated Warranty provisions include only standard warranty, whereas services pur- future earnings as well as interest rate and risks. chased in addition to the standard warranty are included in prepayments from customers. The carrying value of development projects in progress and finished development projects at 31 December 2011 are EUR 833m (2010: EUR 626m). In addition to the above, provisions are made for upgrades of turbines sold due to type faults, etc. where Vestas has a warranty obligation at the date of Receivables provision. Such provisions will also include turbines sold in prior years, but Receivables are measured at amortised cost less provisions for bad debts where type faults, etc. are identified later. Moreover, it should be emphasised based on customers' inability to pay. If the ability to pay changes in future, that the complexity of some of the type faults, etc. identified may lead to further provisions may be required. Management makes analyses based adjustments of previous estimates, upwards as well as downwards, in the on customers' expected ability to pay, historical data on payment patterns, light of factual information about population size, costs of repair and the tim- doubtful debts, customer concentrations, customers' credit standing and ing of such repair. security received as well as economic trends in the company's sales chan- nels. It is estimated that 15–20 per cent of the warranty provisions made for the year relate to adjustments of estimates in previous years of provisions for It is estimated that the provisions made are sufficient to meet bad debts. serial faults, etc. Included in this, is the cost of upgrades of turbines sold in previous year, commercial settlements and proactive upgrading as well as The carrying value of receivables at 31 December 2011 is EUR 1,249m new information about the serial faults in question. (2010: EUR 966m).

Total warranty provisions of EUR 148m have been made in 2011, corre sponding to 2.5 per cent of the Group's annual revenue.

068 Vestas annual report 2011 · Consolidated accounts Deferred tax The Vestas Group recognises deferred tax assets, including the tax value of tax loss carry-forwards, where Management assesses that the tax assets may be utilised in the foreseeable future for set-off against future positive taxable income. The assessment is made on an annual basis and is based on budgets and business plans for the future years, including planned business initiatives.

The value of recognised deferred tax assets amounts to EUR 333m (2010: EUR 224m), of which EUR 115m (2010: EUR 27m) relates to tax loss carry- forwards. Of the total tax carry-forwards, EUR 0m is expected to be realised within 12 months, and EUR 115m is expected to be realised later than 12 months after the balance sheet date. The value of non-recognised tax assets (primarily tax loss carry-forwards) totals EUR 32m (2010: EUR 21m), which is not expected to be utilised in the foreseeable future.

For further description of the Group's tax assets, refer to note 16 to the consolidated accounts.

Consolidated accounts · Vestas annual report 2011 069 3 Segment information

Europe and 2011 Africa Americas Asia Pacific Production Total reportable mEUR sales units sales units sales units units Service activity segments External revenue Wind turbines and wind power systems 2,585 1,911 619 0 - 5,115 Service - - - - 705 705 Other 1 0 2 13 0 16 Total external revenue 2,586 1,911 621 13 705 5,836

Internal revenue1) 359 71 34 4,176 0 4,640 Total segment revenue 2,945 1,982 655 4,189 705 10,476

Reportable segments' operating results (EBIT) (4) (99) (155) 109 1102) (39)

Financial items (net) (75) (54) (2) (60) - (191)

Other segment items Depreciation and amortisation 12 6 15 125 8 166 Impairment losses (recognised in the income statement) 0 0 0 22 0 22 Impairment losses (recognised in equity) 0 0 0 0 0 0 Reversal of impairment losses (recognised in the income statement) 0 0 0 0 0 0 Reversal of impairment losses (recognised in equity) 0 0 0 0 0 0 Warranty provisions for the year 1 0 0 0 0 1 Share-based payments 9 0 0 0 0 9 Additions to property, plant and equipment and intangible assets 24 11 8 241 6 290 Additions to investments in associates 0 0 0 0 0 0 Investments in associates 3 0 0 0 0 3 Non current assets (excluding deferred tax, pensions, etc.) 120 19 38 1,378 13 1,568 Segment assets 2,018 977 674 2,387 13 6,069

External revenue specified by countries: USA - 1,705 - - - Germany 839 - - - -

External revenue in Denmark 170 External revenue outside Denmark 5,666

USA China Others Total Non-current assets located in Denmark (excluding deferred tax, pensions, etc.) - - - 1,838 Non-current assets located outside Denmark (excluding deferred tax, pensions, etc.) 497 288 518 1,303

1) Internal revenue relates to inter-group sales as well as management fee, service, royalty and rental income from other companies in the Group. 2) Service EBIT before allocation of group costs.

External revenue specified by country comprises all countries with external revenue that account for more than 10 per cent of the Group's total external revenue.

In 2011 and 2010 no single customer accounts for more than 10 per cent of the Group's total external revenue. None of the Group's assets are classified as held-for-sale. None of the write-downs made on a single asset is material in itself. The non- current assets in all other countries do not individually exceed 10 per cent of total non-current assets for the Group except for the USA.

070 Vestas annual report 2011 · Consolidated accounts 3 Segment information (continued)

Europe and 2010 Africa Americas Asia Pacific Production Total reportable mEUR sales units sales units sales units units Service activity segments External revenue Wind turbines and wind power systems 3,773 1,482 1,028 0 - 6,283 Service - - - - 623 623 Other 6 1 1 6 0 14 Total external revenue 3,779 1,483 1,029 6 623 6,920

Internal revenue1) 531 143 52 3,274 0 4,000 Total segment revenue 4,310 1,626 1,081 3,280 623 10,920

Reportable segments' operating results (EBIT) 125 35 (108) (197) 842) (61)

Financial items (net) (82) (36) (26) (11) - (155)

Other segment items Depreciation and amortisation 13 9 11 115 10 158 Impairment losses (recognised in the income statement) 0 0 0 56 0 56 Impairment losses (recognised in equity) 0 0 0 0 0 0 Reversal of impairment losses (recognised in the income statement) 0 0 0 0 0 0 Reversal of impairment losses (recognised in equity) 0 0 0 0 0 0 Warranty provisions for the year 3 0 1 0 0 4 Share-based payments 6 0 0 0 0 6 Additions to property, plant and equipment and intangible assets 17 5 12 278 10 322 Additions to investments in associates 2 0 0 0 0 2 Investments in associates 3 0 1 0 0 4 Non current assets (excluding deferred tax, pensions, etc.) 110 15 44 1,260 15 1,444 Segment assets 2,105 656 800 2,316 15 5,892

External revenue specified by countries: USA - 1,218 - - - - Germany 0 - - - - -

External revenue in Denmark 111 External revenue outside Denmark 6,809

USA China Others Total Non-current assets located in Denmark (excluding deferred tax, pensions, etc.) - - - 1,616 Non-current assets located outside Denmark (excluding deferred tax, pensions, etc.) 476 277 369 1,122

1) Internal revenue relates to inter-group sales as well as management fee, service, royalty and rent income from other companies in the Group. 2) Service EBIT before allocation of group costs.

Consolidated accounts · Vestas annual report 2011 071 3 Segment information (continued)

mEUR 2011 2010 Reconciliation Reportable segments' EBIT (39) (61) All other operating segments' EBIT 1) (21) 371 Consolidated operating profit (EBIT) (60) 310

Reportable segments' revenue 10,476 10,920 All other segments' revenue 396 494 Elimination of internal revenue (5,036) (4,494) Consolidated revenue 5,836 6,920

Reportable segments' assets 6,069 5,892 All other segments' assets 3,502 2,895 Elimination (1,882) (1,721) Consolidated total assets 7,689 7,066

1) Includes parent company income (management fee, service, royalty and other rental income from Group companies) reduced by costs related to Vestas Technology R&D and Group staff functions.

4 Revenue

mEUR 2011 2010 Sale of wind turbines and wind power systems 5,115 6,283 Sale of service 705 623 Other 16 14 5,836 6,920

Sale of wind turbines and wind power systems are specified as follows: Revenue using percentage-of-completion method (turnkey projects) 807 397 Revenue using completed contract method (supply-only and supply-and-installation projects) 4,308 5,886 5,115 6,283

5 Amortisation, depreciation and impairment losses

mEUR 2011 2010 Amortisation, depreciation and impairment losses of non-current assets are specified as follows: Amortisation, intangible assets 128 90 Impairment losses, intangible assets 0 15 Depreciation, property, plant and equipment 205 182 Impairment losses, property, plant and equipment 22 83 Gains and losses on sold property, plant and equipment 10 4 365 374

– and have been expensed as follows: Cost of sales 159 147 Research and development costs 128 84 Distribution expenses 40 34 Administrative expenses 16 14 Special items 22 95 365 374

072 Vestas annual report 2011 · Consolidated accounts 6 Staff costs

mEUR 2011 2010 Staff costs are specified as follows: Wages and salaries, etc. 1,037 882 Share-based payment 9 6 Pension schemes 55 48 Other social security expenses 114 89 1,215 1,025

EUR 417m (2010: EUR 345m) out of the total staff costs is expensed in cost of sales and EUR 798m (2010: EUR 680m) is expensed in research and development costs, distribution expenses and administrative expenses.

Attributable to: Board of Directors Board remuneration 1 1 1 1

Executive Management Wages and salaries, etc. 2 2 Share-based payment 1 1 3 3

Other executives (Vestas Government) Wages and salaries, etc. 8 7 Share-based payment 2 2 Pension schemes 0 0 10 9

Board of Directors and Executive Management are not covered by any pension schemes.

Average number of employees 22,296 22,216 Number of employees 31 December 22,721 23,252

7 Research and development costs

mEUR 2011 2010 Research and development costs expensed in the year are specified as follows: Research and development costs 402 372 Capitalised development projects (302) (292) Amortisation of development projects 103 70 Impairment losses of development projects 0 0 203 150

Consolidated accounts · Vestas annual report 2011 073 8 Special items

mEUR 2011 2010 Impairment losses of intangible assets 0 15 Impairment losses of property, plant and equipment 22 80 Impairment losses of inventories 0 10 Staff costs 0 47 Other restructuring cost 0 6 22 158

9 Financial income

mEUR 2011 2010 Exchange rate adjustments 0 0 Deposits and receivables: – Interest income 21 20 – Other financial income 1 2 Hedge ineffectiveness (cash flow hedge) 0 0 Hedge ineffectiveness (fair value hedge) 0 0 Change in discounting of provisions 4 0 26 22

10 Financial expenses

mEUR 2011 2010 Exchange rate adjustments 56 41 Financial debts, which are measured at amortised cost: – Interest expenses 53 40 – Other financial expenses 7 9 Hedge ineffectiveness (cash flow hedge) 4 1 Hedge ineffectiveness (fair value hedge) 0 0 Change in discounting of provisions 0 3 120 94

In 2011, borrowing costs amounting to EUR 10m (2010: EUR 1m) was capitalised as part of property, plant and equipment and development projects at a rate of 3.3 per cent (2010: 3.9 per cent).

074 Vestas annual report 2011 · Consolidated accounts 11 Corporation tax

mEUR 2011 2010 Current tax on profit for the year 65 46 Deferred tax on profit for the year (78) 30 Tax on profit for the year (13) 76 Change in corporation tax rate 0 0 Adjustments relating to previous years (net) 26 6 Corporation tax in the consolidated income statement 13 82

Tax on entries in comprehensive income related to deferred tax (8) 6 Tax on entries in comprehensive income (8) 6

Total corporation tax for the year 5 88

Computation of effective tax rate: Corporation tax rate in Denmark 25% 25% Adjustment relating to previous years (17)% 2% Deviation in foreign subsidiaries' tax rates compared to the Danish tax rate (net) (9)% 1% Non-tax deductible expenses (8)% 0% Non-taxable income 3% 0% Tax on special items (2)% 6% Provisions for tax loss carry-forwards 0% 0% Change in corporation tax rate 0% 0% Effective tax rate (8)% 34%

In 2011, the tax rate was (8) per cent against 34 per cent in 2010. The adjustments from previous years and higher tax rates in profitable foreign subsidiaries resulted in positive paid taxes in 2011.

Vestas Wind Systems A/S is jointly taxed with all its Danish subsidiaries. The current Danish corporation tax is allocated to the jointly taxed enterprises in proportion to their taxable incomes. Enterprises that utilise tax losses of other enterprises pay a joint tax contribution to the parent company corresponding to the tax value of the utilised tax losses, whereas enterprises whose tax losses are utilised by other enterprises receive a joint tax contribution from the parent company corresponding to the tax value of the utilised losses (full allocation). The jointly taxed enterprises have adopted the on-account taxation scheme.

12 Earnings per share (EPS)

mEUR 2011 2010 Profit for the year (mEUR) (166) 156

Weighted average number of ordinary shares 203,704,103 203,704,103 Weighted average number of treasury shares (1,260,197) (756,798) Weighted average number of ordinary shares outstanding 202,443,906 202,947,305 Dilutive effect of outstanding options 0 0 Average number of shares outstanding including dilutive effect of options 202,443,906 202,947,305

Earnings per share (EPS) (0.82) 0.77 Earnings per share (EPS-D), diluted (0.82) 0.77

For information about numbers of shares used for the calculation of earnings per share (EPS), see note 22 to the consolidated accounts.

Consolidated accounts · Vestas annual report 2011 075 13 Intangible assets

Completed Development 2011 development projects in mEUR Goodwill projects Software progress Total Cost at 1 January 320 361 137 457 1,275 Exchange rate adjustments 0 1 1 2 4 Additions 0 16 26 302 344 Disposals 0 (4) 0 (6) (10) Transfers 0 499 0 (499) 0 Cost at 31 December 320 873 164 256 1,613

Amortisation and impairment losses at 1 January 0 192 49 0 241 Exchange rate adjustments 0 1 0 0 1 Amortisation for the year 0 103 25 0 128 Impairment losses for the year 0 0 0 0 0 Reversal of amortisation of disposals in the year 0 0 0 0 0 Transfers 0 0 0 0 0 Amortisation and impairment losses at 31 December 0 296 74 0 370

Carrying amount at 31 December 320 577 90 256 1,243

Internally generated assets included above 0 561 88 256 905 Amortisation period 3–5 years 5 years

Included in software are IT projects in progress amounting to EUR 9m at 31 December 2011.

Completed Development 2010 development projects in mEUR Goodwill projects Software progress Total Cost at 1 January 320 207 103 320 950 Exchange rate adjustments 0 0 0 (1) (1) Additions 0 0 36 292 328 Disposals 0 0 (2) 0 (2) Transfers 0 154 0 (154) 0 Cost at 31 December 320 361 137 457 1,275

Amortisation and impairment losses at 1 January 0 108 30 0 138 Exchange rate adjustments 0 0 0 0 0 Amortisation for the year 0 70 20 0 90 Impairment losses for the year 0 14 1 0 15 Reversal of amortisation of disposals in the year 0 0 (2) 0 (2) Transfers 0 0 0 0 0 Amortisation and impairment losses at 31 December 0 192 49 0 241

Carrying amount at 31 December 320 169 88 457 1,034

Internally generated assets included above 0 169 86 457 712 Amortisation period 3–5 years 5 years

The impairment losses on development projects and software relate to the restructuring that took place within the Group in 2010.

Included in software are IT projects in progress amounting to EUR 35m at 31 December 2010.

076 Vestas annual report 2011 · Consolidated accounts 13 Intangible assets (continued)

Goodwill At 31 December 2011, management completed impairment testing of the carrying amount of goodwill. The impairment testing was done in the fourth quarter based on the budgets and business plans approved by the Board of Directors and the Executive Management as well as other assumptions adjusted, as required, to comply with IAS 36.

The main part of the carrying amount of goodwill in the Vestas Group arose in connection with the merger between Vestas Wind Systems A/S and NEG Micon A/S in 2004 when Vestas acquired NEG Micon A/S.

For the purpose of the impairment test, the carrying amount of goodwill at 1 January 2004 plus goodwill from subsequent acquisitions have been allocated to the cash flow generating units: Europe and Africa, Americas and Asia Pacific. At 31 December 2011, goodwill of the three units amounted to EUR 229m, EUR 84m and EUR 7m, respectively.

When performing impairment tests of cash-generating units, the recoverable amount (value in use) calculated as the discounted value of expected future cash flows is compared to the carrying amount of each of the cash-generating units.

Expected future cash flows are based on budgets and business plans for the next five years.

For all segments, the key parameters are revenue, EBIT, working capital investments, capital investments in progress and contracted as well as growth assumptions.

The revenue growth rate in the period 2007–2010 amounted to 17 per cent per year.

The growth rate used in the impairment model for the years after 2013 is 1.5 per cent, which, to be prudent, is lower than the expected growth rate for the same period.

At 31 December 2011, the net working capital as a percentage of revenue amounted to (1.2) per cent. In the period 2007– 2011 the net working capital as a percentage of revenue moved from (10) to (1.2) per cent, see the Group financial highlights for the development in net working over this period.

Budgets and business plans for the next five years are based on Vestas' investments in progress and contracted investments, and the risks relating to the key parameters have been assessed and recognised in the expected future cash flows. The first five years are based on the growth expectation of a single high-digit EBIT margin in short and medium term. Projections for year six onwards are based on general market expectations and risks.

The terminal value after the five years is determined taking into account general growth expectations for the segments in question.

The discount rates used to calculate the recoverable amount are before tax and reflect the risk-free interest rate of the individual geographical segments and related risk. The proportion of equity in relation to the Group's future capital structure is expected to continue to be high.

Discount rates before tax (%) Growth in terminal period (%) 2011 2010 2011 2010 Europe and Africa 19.1 17.5 1.5 3.0 Americas 19.0 16.4 1.5 3.0 Asia Pacific 16.8 14.2 1.5 3.0

The recoverable amount and net book values of the segments Europe and Africa, Americas and Asia Pacific are EUR 2,010m and EUR 1,826m, EUR 1,207m and EUR 737m and EUR 583m and EUR 505m, respectively. Possible changes to the fundamental assumptions might result in the carrying amount of goodwill exceeding the recoverable amount in any of the segments.

Development projects Recognised completed development projects and development projects in progress comprise development and testing of new wind turbines. The new wind turbines are expected to result in competitive advantages and thus a strengthening of the Group's market position.

The values of the development projects recognised have been compared to expected sales of the individual turbine types. The impairment losses on development projects in 2010, included in special items on the income statement, relates to cancelled development projects in relation to the restructuring. All capitalised development costs are allocated to Europe.

Software Software comprises expenses for acquiring software licences and own development. The value of the recognised software has been compared to the expected value in use. The impairment losses on software in 2010, included in special items on the income statement, relate to cancelled software projects in relation to the restructuring. The costs of software outside Europe that is capitalised is immaterial.

Consolidated accounts · Vestas annual report 2011 077 14 Property, plant and equipment

Other fixtures Property, and fittings, plant and 2011 Land and Plant and tools and equipment in mEUR buildings machinery equipment progress Total Cost at 1 January 1,056 548 563 285 2,452 Exchange rate adjustments 24 14 9 5 52 Additions 8 72 100 226 406 Disposals (5) (48) (38) (1) (92) Transfers 185 77 88 (350) 0 Cost at 31 December 1,268 663 722 165 2,818

Depreciation and impairment losses at 1 January 189 244 315 0 748 Exchange rate adjustments 5 5 8 0 18 Depreciation for the year 45 55 105 0 205 Impairment losses for the year 11 8 3 0 22 Reversal of depreciation of disposals in the year 0 (45) (28) 0 (73) Transfers (2) 9 (7) 0 0 Depreciation and impairment losses at 31 December 248 276 396 0 920

Carrying amount at 31 December 1,020 387 326 165 1,898

Depreciation period 20–40 years 3–10 years 3–5 years

The impairment losses on property, plant and equipment relate to, among other things, the planned closure of the tower factory in Varde, Denmark.

Other fixtures Property, and fittings, plant and 2010 Land and Plant and tools and equipment in mEUR buildings machinery equipment progress Total Cost at 1 January 768 421 419 354 1,962 Exchange rate adjustments 27 15 14 21 77 Additions 185 133 133 7 458 Disposals (1) (36) (8) 0 (45) Transfers 77 15 5 (97) 0 Cost at 31 December 1,056 548 563 285 2,452

Depreciation and impairment losses at 1 January 107 191 203 0 501 Exchange rate adjustments 2 5 5 0 12 Depreciation for the year 37 46 99 0 182 Impairment losses for the year 41 30 12 0 83 Reversal of depreciation of disposals in the year 0 (29) (1) 0 (30) Transfers 2 1 (3) 0 0 Depreciation and impairment losses at 31 December 189 244 315 0 748

Carrying amount at 31 December 867 304 248 285 1,704

Depreciation period 20–40 years 3–10 years 3–5 years

The impairment losses on property, plant and equipment relate to the restructuring that took place within the Group in 2010.

078 Vestas annual report 2011 · Consolidated accounts 15 Investments in associates

mEUR 2011 2010 Cost at 1 January 5 2 Exchange rate adjustments 0 0 Additions 1 3 Disposals 0 0 Disposals, disposals of companies (2) 0 Cost at 31 December 4 5

Value adjustments at 1 January (1) (1) Exchange rate adjustments 0 0 Share of profit 1 0 Dividend 0 0 Disposals 0 0 Value adjustments at 31 December 0 (1)

Carrying amount at 31 December 4 4

16 Deferred tax

mEUR 2011 2010 Deferred tax at 1 January (net) 218 263 Exchange rate adjustments (1) 5 Deferred tax on profit for the year 78 (30) Adjustment relating to previous years 17 (15) Changes in corporation tax rate 1 1 Tax on entries in comprehensive income 8 (6) Deferred tax at 31 December (net) 321 218

Tax base of tax loss carry-forwards (net) 115 27 Intangible assets (76) (90) Property, plant and equipment 78 (6) Current assets 125 110 Provisions 93 82 Balance of tax losses for recapture in foreign subsidiaries under Danish joint taxation (23) (23) Tax credit 11 38 Other 10 86 Deferred tax assets 333 224

Intangible assets 0 0 Property, plant and equipment 11 0 Current assets 0 (1) Provisions 0 1 Balance of tax losses for recapture in foreign subsidiaries under Danish joint taxation 0 0 Other 1 6 Provision for deferred tax 12 6

Deferred tax asset at 31 December (net) 321 218

Consolidated accounts · Vestas annual report 2011 079 16 Deferred tax (continued)

No provision is made for deferred tax regarding undistributed earnings in subsidiaries, as the Group controls the release of the obligation.

If the earnings were to be distributed, this would release a current tax charge of EUR 0m for 2011 (2010: EUR 37m).

Deferred tax assets are recognised for tax loss carry-forwards corresponding to earnings that are likely to be generated in the future. The assessment has been made considering the ability to utilise tax carry-forwards in previous years as well as future expectations. Of the total tax carry-forwards, EUR 21m (2010: EUR 31m) are subject to expiry limits, however, these are all expected to be utilised within five years. Deferred tax assets amounting to EUR 32m (2010: EUR 21m) have not been recognised in the balance sheet, as their utilisation is not assessed to be sufficiently certain, primarily because of Vestas' earnings expectations in some countries.

Of the total deferred tax relating to tax loss carry-forwards included in the deferred tax assets, an amount of EUR 134m (2010: EUR 26m) relates to Denmark. Of the tax-loss carry-forwards noted above, EUR 0m (2010: EUR 0m) relates to Denmark. For further description of the utilisation of tax-loss carry-forwards, see note 2 to the consolidated accounts.

17 Inventories

mEUR 2011 2010 Raw materials and consumables 774 800 Work in progress 513 366 Finished goods 1,256 1,568 Prepayments for goods 3 1 2,546 2,735

Inventories used for the year, which are included in costs of sales 4,196 4,624 Write-downs of inventories in the year 46 64 Reversal of write-downs in the year 26 34

18 Trade receivables

mEUR 2011 2010 Trade receivables 663 624

Fair value of security received for trade receivables balances outstanding as at 31 December 127 105

Write-downs included in trade receivables, developed as follows: Write-downs at 1 January (2) 0 Write-downs in the year (1) (2) Realised in the year 0 0 Reversals 0 0 Write-downs at 31 December (3) (2)

All trade receivables are expected to be received within 12 months.

The age distribution of receivables is as follows: Not overdue 558 543 0–60 days overdue 63 46 61–120 days overdue 8 11 121–180 days overdue 5 4 More than 180 days overdue 29 20 663 624

080 Vestas annual report 2011 · Consolidated accounts 18 Trade receivables (continued)

The total write-downs of trade debtors of EUR 3m (2010: EUR 2m) that is based on an individual assessment of each receivable, relates to companies in bankruptcy.

Trade receivables are mainly owed by companies within the energy sector. The credit risk is dependent on the development within this sector. Vestas does not have a single significant trade debtor nor are the trade debtors concentrated in specific countries.

19 Construction contracts in progress

mEUR 2011 2010 Sales value of construction contracts in progress 403 322 Progress billings (294) (297) 109 25

– which are included as follows: Construction contracts in progress (assets) 147 40 Construction contracts in progress (liabilities) (38) (15) 109 25

No retentions related to construction contracts in progress at the end of 2011 and 2010.

All receivables relating to construction contracts in progress are expected to be received within 12 months.

20 Other receivables

mEUR 2011 2010 Prepayments 33 27 Supplier claims 17 26 Other receivables 389 249 439 302

– specified as follows: 0–1 years 395 277 > 1 year 44 25 439 302

Other receivables stated above principally comprise VAT and insurance receivables.

21 Corporation tax

mEUR 2011 2010 Corporation tax 1 January 40 (52) Exchange rate adjustments (1) (1) Corporation tax for the year (65) (46) Adjustments relating to previous years (43) 9 Change in corporation tax rate (1) (1) Corporation tax paid in the year 69 131 Corporation tax at 31 December (1) 40

Corporation tax (assets) 41 64 Corporation tax (liabilities) (42) (24) (1) 40

Consolidated accounts · Vestas annual report 2011 081 22 Share capital

2011 2010 The share capital comprises of 203,704,103 shares of DKK 1.00 203,704,103 203,704,103

Number of shares at 1 January 203,704,103 203,704,103 Number of shares at 31 December 203,704,103 203,704,103

Shares outstanding 202,248,290 202,948,290 Treasury shares 1,455,813 755,813 Number of shares at 31 December 203,704,103 203,704,103

The share capital was increased by 18,500,000 shares of DKK 1.00 in 2009. Except for these increases, the share capital has been unchanged in the period 2007–2011.

All shares rank equally.

2011 2010 2011 2010 2011 2010 Number of Number of Nominal value Nominal value % of share % of share shares shares (DKK) (DKK) capital capital

Treasury shares at 1 January 755,813 758,363 755,813 758,363 0.4 0.4 Purchases/(sales) 700,000 (2,550) 700,000 (2,550) 0.3 0.0 Treasury shares at 31 December 1,455,813 755,813 1,455,813 755,813 0.7 0.4

The Board of Directors has been authorised at the Annual General Meeting to allow Vestas Wind Systems A/S to acquire treasury shares amounting to a total nominal value of 10 per cent of the company's share capital during the period up until the next Annual General Meeting on 29 March 2012.

Vestas Wind Systems A/S acquired treasury shares in 2011 at nominal values of DKK 300k, 200k and DKK 200k at share prices of DKK 179.10, DKK 199.67 and DKK 154.12, respectively, corresponding to an acquisition sum of EUR 17m. In 2009 Vestas acquired treasury shares, at nominal value of DKK 22k at a share price of DKK 339.17 corresponding to an acquisition sum of EUR 1m and in 2007, at nominal values of DKK 569k and DKK 28k at share prices of DKK 378.54 and DKK 357.90, respectively, corresponding to an acquisition sum of EUR 30m.

Treasury shares are acquired with a view to using them for the Group's share option programmes.

The share capital has been fully paid.

No dividend has been paid out in 2011 and 2010 relating to the financial years 2010 and 2009.

082 Vestas annual report 2011 · Consolidated accounts 23 Provisions

mEUR 2011 2010 Warranty provisions Warranty provisions at 1 January 283 339 Exchange rate adjustments 1 0 Warranty provisions for the year 148 194 Utilised warranty provisions during the year (179) (253) Reversed warranty provisions during the year 0 0 Adjustment to previously recognised warranty provisions 0 0 Adjustments relating to the change in discounting of warranty provisions (4) 3 Warranty provisions at 31 December 249 283

The warranty provisions are expected to be consumed as follows: 0–1 year 138 171 >1 year 111 112 249 283

The product warranties, which in the great majority of cases cover component defects, functional errors and any financial losses suffered by the customer in connection with unplanned suspension of operations, are usually granted for a two-year period from delivery of the wind turbine. In certain cases, a warranty of up to five years is granted. For the customer, the specific warranty period and the specific warranty terms are part of the basis of the individual contract.

Warranty provisions include only standard warranty. See page 16 of the management report and note 2 to the consolidated accounts for further information on Vestas' warranty provisions.

In addition to the above, provisions are made for upgrades to wind turbines sold due to type faults, etc. where Vestas has a warranty obligation at the date of provision. Such provisions will also include wind turbines sold in prior years, but where type faults, etc. are identified later. Moreover, it should be emphasised that the complexity of some of the type faults, etc. identified may lead to adjustments, upwards as well as downwards, of previous estimates in light of factual information about population size, costs of repairs and the timing of such repairs.

In line with accounting policies from now on, potential product warranties will always be recognised as warranty provisions when revenue from sale of wind turbines is recognised. This may result in commercial constructive obligations beyond the specified legally obligatory warranty period for the turbine being recognised as a warranty obligation.

It is estimated that 15–20 per cent of the warranty provisions made for the year relate to adjustments of previous years' estimates of provisions for serial faults, etc. Included in this is the cost for upgrades of wind turbines sold in previous years, commercial settlements and proactive upgrading as well as new information about the serial faults in question.

Product risks Lack of reliability in several of Vestas' products has previously led to major warranty provisions, and in recent years, Vestas has invested significant resources in improving the products and increasing their reliability. This work comprises design, production, installation and continuous maintenance.

The goal of these initiatives is to reduce Vestas' warranty costs, to secure customer returns, to increase the competi tiveness of the Group's products and to improve customer earnings.

Consolidated accounts · Vestas annual report 2011 083 23 Provisions (continued)

mEUR 2011 2010 Other provisions Other provisions at 1 January 79 72 Exchange rate adjustments 0 1 Other provisions for the year 45 70 Utilised other provisions during the year (58) (64) Adjustment to previously recognised other provisions 0 0 Other provisions at 31 December 66 79

Other provisions include compensation regarding agreements made to purchase wind turbine parts which are not expected to be fulfilled in accordance with the contractually agreed parameters and provisions for onerous service contracts. The provisions have been calculated based on management's best estimate and are expected to be settled on average over 2–3 years.

Other provisions are expected to be payable as follows: 0–1 year 32 52 > 1 year 34 27 66 79

The provisions are expected to be payable as follows: 0–1 year 170 223 > 1 year 145 139 315 362

084 Vestas annual report 2011 · Consolidated accounts 24 Pension obligations

The Vestas Group's entities have different pension schemes and severance programmes which have been adapted to the labour market variables of the individual countries. Approximately 99 per cent of the Group's pension expenses relate to defined contribution plans, which includes no further obligations to the company other than the contributions paid.

The other plans are defined benefit plans, the majority of which have related plan assets in independent pension funds. The defined benefit plans will typically secure the employees covered by a pension based on final-salary.

Under defined contribution plans, an employer commits to paying a certain contribution (e.g. a fixed amount or a fixed percentage of their salary). Under a defined contribution plan, the Group does not carry the risk relating to the future development in interest rate, inflation, mortality and disablement.

Under defined benefit plans, an employer commits to paying a certain benefit (e.g. a retirement benefit as a fixed amount or a fixed percentage of the employee's final salary). Under a defined benefit plan, the Group carries the risk relating to the future development in interest rate, inflation, mortality and disablement.

The pension obligation of Danish and some foreign entities are covered by insurance. Foreign entities whose obligations are not or are only partly covered by insurance (defined benefit plans) calculate their obligations, using actuaries, at net present value at the balance sheet date. These pension plans are fully or partly covered through pension funds for the employees. In the consolidated accounts an amount of EUR 2m (2010: EUR 2m) has been recognised in liabilities in respect of the Group's defined benefit obligations towards current and previous employees after deducting plan assets.

mEUR 2011 2010 The following amounts have been recognised in the consolidated income statement: Defined contribution plans 55 57 Defined benefit plans 0 2 55 59

The cost has been recognised in the following items: Cost of sales 32 34 Research and development costs 6 6 Distribution expenses 6 6 Administrative expenses 11 13 55 59

Net present value of covered defined benefit plans (8) (9) Net present value of uncovered defined benefit plans 0 (1) Net present value of defined benefit plans (8) (10) Fair value of plan assets 6 6 Surplus/(deficit) cover (2) (4) Non-recognised actuarial (gains)/losses 0 2 Net obligation recognised in the balance sheet (2) (2)

Development in net present value of defined benefit plan obligations:

Net present value of defined benefit plan obligations at 1 January 10 10 Exchange adjustments 0 0 Pension expenses relating to current financial year 0 0 Calculated interest on obligations 0 0 Actuarial (gains) /losses (2) 0 Loss on reductions and fulfilment 0 1 Pension expenses relating to prior financial years 0 0 Pensions paid 0 (1) Net present value of defined benefit plan obligations at 31 December 8 10

Consolidated accounts · Vestas annual report 2011 085 24 Pension obligations (continued)

mEUR 2011 2010 Development in fair value of pension assets: Pension assets at 1 January 6 7 Exchange rate adjustments 0 0 Estimated return on plan assets 0 0 Actuarial gains/(losses) 1 0 Paid in by the Vestas Group 0 0 Paid in by participants 0 0 Pensions paid (1) (1) Pension assets at 31 December 6 6

Pension expenses recognised in the income statement: Pension expenses relating to current financial year 0 1 Calculated interest on obligation 1 1 Estimated return on plan assets 0 0 Recognised actuarial (gain)/loss for the year 0 0 Pension expenses relating to prior financial years 0 0 Loss on reductions and fulfilment 0 0 Total recognised for defined benefit plans 1 2

Pension assets break down as follows: European shares 2 2 European bonds 3 3 Cash funds 1 1 6 6

Return on pension assets: Estimated return on plan assets 0 0 Actual return on plan assets 0 0 Actuarial gain/(loss) on plan assets 0 0

The Group expects to pay less than EUR 1m to the defined benefit plan in 2012.

The average assumptions underlying actuarial calculations at the balance sheet date are as follows: Discount rate (%) 3.3 3.8 Estimated return on pension funds (%) 4.8 4.6 Estimated rate of pay increase (%) 4.0 4.0 Estimated pension increase (%) 0.7 2.0

The estimated return on the plan assets has been determined based on the composition of the assets and general expectations with respect to economic trends.

mEUR 2011 2010 2009 2008 2007 Actuarially calculated pension obligations (8) (10) (10) (10) (10) Pension assets 6 6 7 7 8 Deficit cover (2) (4) (3) (3) (2)

Changes to obligations based on experience 0 0 0 0 0 Changes to pension assets based on experience 0 0 0 0 0

There are no restrictions on the types of the pension assets which Vestas is allowed to invest in to meet the pension obligations. The pension assets include no Vestas shares, receivables from or any property leased by Vestas. All relevant assumptions relating to the actuarial calculations exclude immaterial costs.

086 Vestas annual report 2011 · Consolidated accounts 25 Financial debts

mEUR 2011 2010 Financial debts are recognised in the balance sheet as follows:

Current liabilities Mortgage debt 1 1 Bank debt and debt to credit institutions 5 3 6 4

Non-current liabilities Mortgage debt 7 7 Debt to credit institutions 309 306 Corporate bonds 598 597 914 910

1–5 years 910 906 > 5 years 4 4

Financial debts 920 914

Fair value 851 914 Nominal value 920 914

On 23 March 2010, Vestas issued euro dominated corporate bonds at a nominal amount of EUR 600m at a rate of 4.625 per cent and an effective interest of 4.8 per cent. The corporate bonds will mature 23 March 2015.

It is Group policy to endeavour and ensure an appropriate development in the financial ratios with a view, for example, to maintaining the Group's credit rating and to complying with the agreed requirements in the Group's financing agreements.

The fair value is calculated as the present value of agreed cash flows using a current market-based interest rate. The fair value of the issued corporate bonds is determined based on the listed bond price as t 31 December.

Consolidated accounts · Vestas annual report 2011 087 26 Other liabilities

mEUR 2011 2010 Staff cost 101 120 Taxes and duties 153 120 Other payables 102 83 356 323

27 Adjustment for non-cash transactions

mEUR 2011 2010 Amortisation and depreciation for the year of intangible assets and property, plant and equipment, including gains and losses on sale of non-current assets 365 374 Share of profit in associates 1 0 Warranty provisions in the year (net) (35) (56) Pension provisions in the year 0 0 Other provisions in the year (12) 7 Exchange rate adjustment (69) (74) Financial income (26) (22) Financial expenses 120 94 Corporation tax for the year 13 82 Cost of share-based payments 9 6 Other adjustments 0 0 366 411

28 Change in net working capital

mEUR 2011 2010 Change in inventories 193 1,198 Change in receivables (264) (166) Change in prepayments from customers 342 (1,328) Change in trade payables 443 58 Change in other liabilities 33 (115) 747 (353)

088 Vestas annual report 2011 · Consolidated accounts 29 Acquisition of enterprises

mEUR 2011 2010 Carrying Carrying amount prior to amount prior to Fair value acquisition Fair value acquisition Other non-current assets 17 17 0 0 Total non-current assets 17 17 0 0

Inventories 4 4 4 4 Trade receivables 0 0 0 0 Cash at bank and in hand 0 0 0 0 Other receivables 0 0 0 0 Total current assets 4 4 4 4

Total non-current liabilities 0 0 0 0

Trade payables 0 0 0 0 Other liabilities 0 0 0 0 Total current liabilities 0 0 0 0

Net assets 21 21 4 4 Goodwill 0 0 0 0 Total purchase consideration: 21 21 4 4 of which relate to cash and cash equivalents less bank debt 0 0 0 0 Purchase consideration payable 0 0 (2) (2) Cash purchase consideration 21 21 2 2 Share consideration 0 0 0 0 Net cash purchase consideration 21 21 2 2

In October 2011 Vestas Wind Systems A/S acquired activities in OCAS AS related to a completed development project in Norway. In October 2010, Vestas acquired the activities (activities related to project development) in GB Linowo Sp. Z.o.o. in Poland. In 2011 Vestas acquired similar activities in Bulgaria.

30 Cash at bank and in hand

Cash at bank and in hand with disposal restrictions, EUR 24m (2010:EUR 10m) mainly comprises prepayments from a range of customers in relation to projects and the restriction is lifted as contractual obligations are met and included in day-to-day cash management.

Consolidated accounts · Vestas annual report 2011 089 31 Fees to auditors appointed by the Annual General Meeting

mEUR 2011 2010 Audit: PricewaterhouseCoopers 3 3 Total audit 3 3

Non-audit services:

PricewaterhouseCoopers Assurance engagements 0 0 Tax assistance 1 1 Other services 1 1 Total non-audit services 2 2

Total 5 5

Vestas' auditors can be used, within certain parameters, for certain non-audit services and may often be the obvious choice due to business knowledge, confidentiality and costs consideration. Vestas has a comprehensive policy for non-audit services ensuring that the provision of non-audit services to the Group does not impair the auditors' independence or objectivity. The Audit Committee is responsible for the development and maintenance of this policy and monitors compliance.

In 2011 and 2010, other services include fees mainly for other assistance in accounting.

32 Management's option programme and shareholdings

Option programme A share option programme was established in 2006 for the Executive Management, the Vestas Government and other selected executives of the Group, totalling 20 people. Options were granted based on the achievement of specified targets for 2006 and 2007. The market value, based on the Black-Scholes valuation model calculated at the date of grant/establishment of the programme, amounted to EUR 3m.

In 2007, a new option programme was introduced for the same members as in the 2006 programme. The programme granted 580,080 options, which were valued, based on the Black-Scholes valuation model, on 15 May 2007 at a market value of EUR 12m. 155,102 of the options, valued at EUR 3m, were allocated to the Executive Management.

The members may exercise their options in specified periods and choose to purchase the company's shares at the relevant strike price depending on the programme. Exercise of the options can only occur in the periods where executives are allowed to trade shares in accordance with the Group's internal rules, being within the four weeks following the company announcement of the annual report and quarterly financial reports.

Options are allotted to members when the Board of Directors approves the final annual report relating to the year of grant except for options allotted in 2007. The allotment for 2007 was on 15 May 2007 when the programme was announced.

The share prices and the exercise prices are based on the closing share prices obtained from Bloomberg Financial Markets on the day before the options were granted. The risk free interest rate is estimated as the effective interest rate on a Danish government bond with the same economic life, in this case two, five, six and seven-year bonds. The future volatility, which means movement in the shares’ total yield, is calculated based on historic weekly closing share prices for a period corresponding to time to maturity of the options.

090 Vestas annual report 2011 · Consolidated accounts 32 Management's option programme and shareholdings (continued)

The requirements of the programmes from 2010 onwards are similar to the 2007 programme except that only the Executive Management, Presidents and Senior Vice Presidents reporting directly to the Executive Management must for a period of three years after exercise of the options hold shares in the company corresponding to 50 per cent of the profit gained by the participants after deduction of calculated tax.

2006 programme All the options allotted in 2006 have lapsed. 56,448 options were the net allotted amount in 2007 with a value of EUR 1m at grant. The members of the scheme loose the right to the options, if they terminate their employment before the end of the vesting period. The options can be exercised between two and four years after they have been allotted. Options allotted in 2007 can be exercised from 2010 to 2012. There will be no more new allotments from this programme. The share price, volatility, exercise price, risk-free rate, dividend per share and years to expiry are DKK 167.0, 54 per cent, DKK 147.6, 3.8 per cent, DKK 0 and 5, respectively , at the date of grant.

2007 programme The options allotted to the members of the schemes for 2007, 2008 and 2009 are valued based on the equivalent of 60 per cent of their 2006 annual salary. For 2008 onwards members will only be allotted options if they are still employed when the Board of Directors approves the annual report for the respective years. 207,952 and 189,002 options were allotted in 2007 and 2008, respectively, leaving 183,126 options to be allotted for 2009. The valuations of options grated after 2007 are based on parameters determined at the date of grant. The options can be exercised within two years when three years have elapsed after they have been allotted. This period after the allotment of options is referred to as vesting period.

The members of the scheme loose the right to the options, if they terminate their employment before the end of each of the three allotments’ vesting period. On exercising the options government members and Senior Vice Presidents reporting to the Executive Management must invest 50 per cent of the profit after tax in Vestas shares, which must be held for at least three years.

2009 expansion Three new members were added to the programme on 7 January 2009 and were granted 21,970 options at a value estimated to be EUR 1m. A further four members were added to the scheme on 27 October 2009 and were granted 31,858 options with an estimated value of EUR 1m. In both cases the date of allotment of the options will be the Board of Director's approval of the annual report for 2009 but the service periods start in January 2009 and October 2009, respectively. The terms and conditions of the options are the same as the terms and conditions of the options granted in May 2007.

2010 programme On 25 January 2010, the 2007 programme was expanded to include other members of management and a total of 774,539 options with an estimated value of EUR 16m were granted. 75,335 options, valued at EUR 2m, were allocated to the Executive Management.

2011 programme On 2 March 2011, new options totalling 997,857 with a value of EUR 14m were granted to current and new members of the the 2007 programme. 82,869 options, valued at EUR 1m, were allocated to the Executive Management.

The exercise of the options can only occur, if the members themselves have not terminated their employment at the time of the exercise. Options allotted in 2007, 2008, 2009, 2010 and 2011 can be exercised from 2010 to 2012, 2012 to 2014, 2013 to 2015, 2014 to 2015 and 2015 to 2016, respectively.

The fair value at the grant date has been calculated under the Black-Scholes option pricing model adjusted for dilution of share capital based on the following assumptions:

2011 programme 2010 programme 2007 programme 2007 programme 2007 programme 2009 expansion 2009 expansion 2007 and 2008 (October) (January) grant Share price at grant (DKK) 191.50 299.00 337.00 303.50 380.50 Volatility (%) 54 56 65 88 44 Exercise price (DKK) 184.06 320.60 380.50 380.50 380.50 Risk-free interest rate for options (%) 2.39 2.85 3.47 3.27 4.30 Annual dividend per share (DKK) 0 0 0 0 0 Years to expiry 5 5 5 5 5

Consolidated accounts · Vestas annual report 2011 091 32 Management's option programme and shareholdings (continued)

Balance Grant date sheet date Group Executive Other Exercise price Fair value Total Total Management executives Total per option per option fair value fair value1) pcs pcs pcs DKK DKK tEUR tEUR Outstanding at 1 January 2011 246,815 1,146,894 1,393,709 29,332 Granted 2010 programme 0 57,843 57,843 320.60 158 1,224 - Granted 2011 programme 82,869 914,988 997,857 184.06 102 13,705 - Lapsed 2010 programme 0 (49,251) (49,251) 320.60 158 (1,042) - Lapsed 2011 programme 0 (42,306) (42,306) 184.06 102 (581) - Exercised 0 0 0 - - - Expired 0 0 0 - - - Outstanding at 31 December 2011 329,684 2,028,168 2,357,852 42,638 2,018

Outstanding at 1 January 2010 171,480 470,659 642,139 13,428 Granted 2010 programme 75,335 699,204 774,539 320.60 158 16,387 - Lapsed 2006 programme 0 (2,805) (2,805) 147.60 89 (33) - Lapsed 2007 programme 0 (17,614) (17,614) 380.50 152–207 (419) - Exercised 0 (2,550) (2,550) 147.60 89 (31) - Expired 0 0 0 - - - Outstanding at 31 December 2010 246,815 1,146,894 1,393,709 29,332 11,598

Number of exercisable options at 31 December 2011 70,317 159,494 229,811 333.32)

Number of exercisable options at 31 December 2010 16,378 30,227 46,605 147.62)

1) The fair value as at 31 December is determined based on parameters as at that date with the exception of the exercise price, which remains constant as specified on page 115. No options expired in 2011. 2) Weighted average.

The weighted average remaining life of the options outstanding at 31 December 2011 is three years (2010: three years).

092 Vestas annual report 2011 · Consolidated accounts 32 Management's option programme and shareholdings (continued)

Options outstanding Options exercised Lapsed options Expired options Weighted Weighted Weighted Weighted average average average average No. of Exercise exercise No. of exercise No. of exercise No. of exercise options price price options price options price options price Programmes 2011 2006 programme 46,605 147.60 0 (2,550)1) 0 (7,293) 0 0 0 2007 programme 572,565 380.50 0 0 0 (61,343) 0 0 0 2010 programme 783,131 320.60 0 0 0 (49,251) 0 0 0 2011 programme 955,551 184.06 0 0 0 (42,306) 0 0 0 2,357,852 276.40 (2,550) 147.60 (160,193) 299.60 0 0

1) The weighted average share price at the date of exercise was DKK 313.60.

Options outstanding Options exercised Lapsed options Expired options Weighted Weighted Weighted Weighted average average average average No. of Exercise exercise No. of exercise No. of exercise No. of exercise options price price options price options price options price Programmes 2010 2006 programme 46,605 147.60 0 (2,550)1) 0 (7,293) 0 0 0 2007 programme 572,565 380.50 0 0 0 (61,343) 0 0 0 2010 programme 774,539 320.60 0 0 0 0 0 0 1,393,709 339.50 (2,550) 147.60 (68,636) 355.80 0 0

1) The average share price at the date of exercise is DKK 313.60.

Management's holdings of Vestas shares The internal rules regarding the trading in Vestas shares for the Board of Directors, the Executive Management and certain employees only allow trading in the four weeks following the publication of the annual report and quarterly reports.

Balance at Purchased in Sold in Balance Market value1) 1 January the year the year 31 December tEUR The Board of Directors Bent Erik Carlsen 106,120 10,000 - 116,120 968 Carsten Bjerg 0 1,831 - 1,831 15 Elly Smedegaard Rex 0 200 - 200 2 Freddy Frandsen 3,653 - - 3,653 30 Håkan Eriksson 0 - - 0 0 Jørgen Huno Rasmussen 500 2,435 - 2,935 24 Jørn Ankær Thomsen 2,500 - - 2,500 21 Kim Hvid Thomsen 3,146 1,652 - 4,798 40 Kurt Anker Nielsen 6,250 1,200 - 7,450 62 Michael Abildgaard Lisbjerg 428 406 - 834 7 Sussie Dvinge Agerbo 3,000 - - 3,000 25 Torsten Erik Rasmussen 7,837 - - 7,837 65 133,434 17,724 - 151,158 1,259

Executive Management Ditlev Engel 2,224 - - 2,224 18 Henrik Nørremark 213 - - 213 2 2,437 0 0 2,437 20

1) The calculation of the year-end market value is based on the share price quoted on the NASDAQ OMX Copenhagen at the end of the year (DKK 62.00).

Consolidated accounts · Vestas annual report 2011 093 33 Related party transactions

Vestas Wind Systems A/S has no shareholders with controlling influence.

The related parties of the Vestas Group include the Board of Directors of the company, the Executive Management, and other executives (Vestas Government), together with close members of the family of these individuals. Furthermore, related parties include entities which are significantly influenced by the afore-mentioned individuals.

Transactions with the Board of Directors, Executive Management and other executives Transactions with the Executive Management only consist of normal management remuneration and the transactions mentioned below, see note 6 to the consolidated accounts.

Transactions with the Board of Directors, Executive Management and other executives in the year comprise the following:

Purchase of normal legal services for EUR 0.3m at arm's length basis (2010: EUR 1.2m) from the law firmGorrissen Federspiel, where Jørn Ankær Thomsen is a partner. The outstanding balance payable to Gorrissen Federspiel at 31 December 2010 amounted to EUR 0.1m (2010: EUR 0.1m).

Five people (2010: five) covered by the definition of related parties have directly or indirectly full or part ownership of wind turbines where a company in the Vestas Group performs service work. These transactions take place at arm's length and in total amounted to EUR 0.4m in 2010 (2010: EUR 0.2m). The outstanding amount of purchases from related parties at 31 December 2011 amounted to EUR 0.3m (2010: EUR 0.1m).

There have been no other transactions with any members of the Board of Directors and the Executive Management in Vestas Wind Systems A/S or other executives during the year.

With the exception of the Board members elected by the employees, no members of the Board of Directors have been employed by the Group in 2011.

Transactions with and associates Related parties also include associates over whom Vestas Wind Systems A/S has control or significant influence.

The Vestas Group's and associates and related shareholdings are listed under ”Legal entities” on pages 105–107.

Outstanding balances with associates have resulted from standard business transactions regarding purchase and sale of goods and services. No interest is calculated on the outstanding balances and the transactions are entered into with the same trading conditions as for the Group's other customers and suppliers.

34 Government grants

The Group has received a number of government grants, of which EUR 0m (2010: EUR 2m) has been offset against incurred expenses and EUR 28m (2010: EUR 23m) has been offset against non-current assets. Out of the EUR 28m (2010: EUR 23m) offset against property, plant and equipment EUR 2m (2010: EUR 0m) was received in cash.

094 Vestas annual report 2011 · Consolidated accounts 35 Mortgages and security

As security for the Group's mortgage loans, mortgage deeds registered to the mortgagor and all-money mortgages have been secured on land and buildings, plant and machinery as well as other fixtures and fittings, tools and equipment. Some of the Group's other property, plant and equipment has been placed as security.

Furthermore, the Group has issued mortgage deeds registered to the mortgagor and all-money mortgages which are secured on the aforementioned properties. These mortgage deeds registered to the mortgagor and all-money mortgages are all in the possession of the Group.

As security for credit facilities, the Group has given security in its cash at bank and in hand and other current assets.

mEUR 2011 2010 Total mortgage loans 8 8

Mortgage deeds and all-money mortgages: Nominal value of mortgage deeds and all-money mortgages 10 10 Carrying amount of pledged assets 21 19

Other mortgage deeds and all-money mortgages in the possession of the Group 122 122

The carrying amounts of the collaterals outstanding as at 31 December are specified below: Bank guarantees 345 293 345 293

36 Contractual obligations

mEUR 2011 2010 The minimum lease obligations relating to operating leases fall due: 0–1 year 49 44 1–5 years 100 109 > 5 years 30 74

Operating leases comprise irrevocable operating leases regarding buildings and vehicles. The main obligation relates to buildings in Germany and runs for up to 21 years after the balance sheet date. The lease agreements will not result in any restrictions in relation to raising of other debts or payment of dividends.

Costs recognised in the income statement relating to operating leases amount to EUR 44m in 2011 (2010: EUR 37m).

The Group has entered into binding contracts concerning purchase of plant to be delivered in 2012 and thereafter at a value of EUR 18m (2010: EUR 54m).

The Group has entered into binding contracts concerning purchase of components for production to be delivered in 2012 and thereafter at a total value of EUR 1,346m (2010: EUR 2,021m).

Consolidated accounts · Vestas annual report 2011 095 37 Contingent liabilities and contingent assets

Contingent liabilities Vestas is involved in some litigation proceedings including agent matters and a class action regarding the change in accounting policy among others. However, it is the opinion of management that settlement or continuation of these proceeding will not have a material effect on the financial position of the Vestas Group.

Contingent assets Vestas has made supplier claims for faulty deliveries. However, it is the opinion of management that settlement of these will not have a material effect on the financial position of the Vestas Group.

38 Derivative financial instruments, risk and financial management

The Group's policy for managing financial risks The Vestas Group is exposed to changes in exchange rates, interest rates and commodity prices due to its investments and financing operations. Management identifies the level and concentration of risks and initiates policies to address these, through continuous business reviews. Moreover, the Group is exposed to credit and liquidity risks. It is the Group's policy not to engage in any active speculation in financial risks. Accordingly, the Group's financial management is directed solely towards managing or eliminating financial risks relating to operations and funding.

The Group's policy for managing financial risks remains unchanged from last year.

Credit risks The Group's credit risk primarily relates to receivables and bank balances, investments as well as derivative financial instruments.

Credit risks relating to receivables arise when Vestas makes sales for which no prepayment has been received. In some cases Vestas hedge uncertainties relating to payments by way of letters of credit, bank guarantees, credit insurance, conditional sale, etc. Security received is taken into account in the assessment of any provision for bad debts.

Vestas' customers' creditworthiness is reviewed in connection with the closing of contracts. If Vestas does not receive security for the payments, the total contract amount plus VAT, or if the customer does not have adequate credit rating from S&P, Moody's or Fitch, a more detailed assessment of the customer's creditworthiness is performed by the sales unit, Contract Review Board and Group Treasury prior to the signing of the contract to mitigate any risks to Vestas.

91 per cent (2010: 87 per cent) of Vestas' customers/trade receivables had not exceeded the deadline for payment at 31 December 2011. The credit risk relating to the outstanding trade receivables balance as at 31 December is mitigated by the EUR 127m (2010: EUR 105m) received as security. Historically, Vestas' customers have paid within the payment period agreed upon.

Vestas sells wind turbines, wind power systems and service to companies, which are well positioned in national and inter national markets. These companies are considered to be reputable companies. All outstanding trade debtors are owed by reputable companies.

096 Vestas annual report 2011 · Consolidated accounts 38 Derivative financial instruments, risk and financial management (continued)

Credit risks relating to bank balances, investments as well as derivative financial instruments arise due to uncertainty as to whether the counterparty will be able to meet its obligations when they are due. The Group minimises this risk by only using financial institutions with a high credit standing as brokers for the purchase and sale of financial instruments. Furthermore, internally Vestas has set limits for the Group's total balance with each bank.

The group of Vestas' bankers currently consists of 9 banks, which all fulfil the minimum required long term credit rating from either S&P, Fitch and/or Moody’s of:

Credit Rating Agency Rating S&P A Fitch A Moody’s A2

The financial crisis has downgraded two members of the Vestas banking group and as such, not all of them are complying with the desired rating. Vestas has decided to retain the cooperation, but is monitoring the development of the banks closely and will act accordingly.

No bank balances or derivative financial instruments are overdue or written down due to the counterparty's inability to pay. There are no historic losses related to bank balances and derivative financial instruments due to the counterparty's inability to pay.

Liquidity risks Liquidity risk is the risk that Vestas is unable to meet its obligations as they fall due because of inability to realise assets or obtain adequate funding. The Group ensures that a strong liquidity position is maintained in order to service its financial obligations as they fall due, both under normal and more pressing conditions.

Group Treasury is charged with ensuring that substantial capital resources are in place at all times through a combination of liquidity management, non-committed and committed credit facilities and other debt instruments. Vestas controls its liquidity risk through a combination of cash pool systems, non-committed and committed credit facilities and other debt instruments on the basis of continuous cash flow forecast.

However, it is naturally not possible to guarantee that Vestas will always be able to maintain its credit rating or to comply with the minimum requirements in the financing agreements. The occurrence of either eventuality would be likely to have a significant adverse effect on the Group.

The value of cash assets with disposal restrictions was EUR 24m at 31 December 2011 (2010: EUR 10m).

Consolidated accounts · Vestas annual report 2011 097 38 Derivative financial instruments, risk and financial management (continued)

The following table shows the timing of cash flows related to financial obligations, assets and hedging instruments.

2011 Carrying More than Total cash mEUR amount Fair value < 1 year 1–5 years 5 years flows Measured at amortised cost (loans and other debt) Mortgage debts 8 8 1 3 4 8 Bank debt and debt to credit institutions 314 314 5 309 0 314 Trade payables 1,563 1,563 1,563 0 0 1,563 Other liabilities 267 267 267 0 0 267 Corporate bonds 598 521 0 598 0 598 2,750 2,673 1,836 910 4 2,750

Derivative financial instruments Interest SWAPS (gross): Floating-rate obligation 11 11 9 2 0 11 Fixed-rate obligation 9 9 7 2 0 9 Currency hedging agreements: Cash flow hedges 53 53 39 14 0 53 Fair value hedges 16 16 16 0 0 16 89 89 71 18 0 89

Total financial liabilities 2,839 2,762 1,907 928 4 2,839

Measured at amortised cost (receivables and deposits) Trade receivables 663 663 663 0 0 663 Construction contracts and other receivables 524 524 480 44 0 524 1,187 1,187 1,143 44 0 1,187

Derivative financial instruments Interest SWAPS (gross): Floating-rate assets 11 11 9 2 0 11 Fixed-rate obligation 21 21 10 11 0 21 Currency hedging agreements: Cash flow hedges 8 8 8 0 0 8 Fair value hedges 10 10 10 0 0 10 50 50 37 13 0 50

Total financial assets 1,237 1,237 1,180 57 0 1,237

098 Vestas annual report 2011 · Consolidated accounts 38 Derivative financial instruments, risk and financial management (continued)

2010 Carrying More than Total cash mEUR amount Fair value < 1 year 1–5 years 5 years flows Measured at amortised cost (loans and other debt) Mortgage debts 8 8 1 1 7 9 Bank debt and debt to credit institutions 309 309 6 352 0 358 Trade payables 1,120 1,120 1,120 0 0 1,120 Other liabilities 254 254 254 0 0 254 Corporate bonds 597 583 0 717 0 717 2,288 2,274 1,381 1,070 7 2,458

Derivative financial instruments Interest SWAPS (gross): Floating-rate obligation 0 0 0 0 0 0 Fixed-rate obligation 0 0 0 0 0 0 Currency hedging agreements: Cash flow hedges 28 28 19 9 0 28 Fair value hedges 10 10 10 0 0 10 38 38 29 9 0 38

Total financial liabilities 2,326 2,312 1,410 1,079 7 2,496

Measured at amortised cost (receivables and deposits) Trade receivables 624 624 624 0 0 624 Construction contracts and other receivables 274 274 249 25 0 274 898 898 873 25 0 898

Derivative financial instruments Interest SWAPS (gross): Floating-rate assets 0 0 0 0 0 0 Fixed-rate obligation 0 0 0 0 0 0 Currency hedging agreements: Cash flow hedges 40 40 32 8 0 40 Fair value hedges 9 9 9 0 0 9 49 49 41 8 0 49

Total financial assets 947 947 914 33 0 947

Cash at bank and in hand and investments are measured at fair value and any adjustments are made through the income statement.

Cash flows for hedged assets and hedged liabilities as well the hedging instrument are recognised in the income statement in the same period.

For a description of cash flows relating to operating leases, reference is made to note 36 to the consolidated accounts.

The carrying amounts of derivative financial instruments are included in other receivables and other liabilities, as appropriate.

As a general rule, the fair value of financial liabilities and financial assets is calculated using discounted cash flow models based on the market interest rates and credit conditions at the balance sheet date.

Financial instruments measured at fair value are categorised into the following levels of the fair value hierarchy: Level 1: Observable market prices for identical instruments. Level 2: Valuation techniques primarily based on observable prices or traded prices for comparable instruments. Level 3: Valuation techniques primarily based on unobservable prices.

The fair value of Vestas' forward exchange contracts as well as of other derivative financial instruments (commodity instruments) is measured according to level 2 as the fair value can be established directly based on exchange rates published and forward interest rates and prices specified at the balance sheet date.

Fair value of bonds is measured as level 1 because the fair value is set from the share price in an open market.

Consolidated accounts · Vestas annual report 2011 099 38 Derivative financial instruments, risk and financial management (continued)

Market risks Vestas' market risks relating to financial instruments comprise: currency risks, interest rate risks and commodity price risks.

Currency risks The Group's business activities involve a number of currency risks in connection with purchases and sales of goods and services in foreign currencies. It is Group policy to hedge the currency risk at the time of entering into a binding agreement in foreign currency. The currency risk is primarily hedged by forward exchange contracts.

In 2009 and 2010 Vestas has been investing in production facilities ensuring that customers in Europe and Africa are supplied from Europe, customers in Americas from USA and those in Asia Pacific from Asia significantly reducing the currency risk for the Group.

Exchange adjustments relating to investments in Group subsidiaries and associates abroad with a different functional currency than that of the parent company are recognised directly in equity. Related currency risks are not hedged as, in the Group's opinion, hedging of such long-term investments will not be optimal from an overall risk, liquidity and cost perspective.

An increase of 10 per cent (2010: 1 per cent), considered probable by management, in the currencies specified below against the euro, will have the following isolated effects as at 31 December.

2011 2010 USD: Equity 5 (12) Profit for the year 23 0

CAD: Equity 51 2 Profit for the year 2 1

GBP: Equity 19 0 Profit for the year 0 1

AUD: Equity (3) 0 Profit for the year (3) (1)

SEK: Equity 0 (2) Profit for the year (55) 0

Only currencies with material effect on comprehensive income and income statement are specified above. The above analysis is based on the assumption that all other variables, interest rates in particular, remain constant. The expectations are based on currently available market data.

A corresponding decline in the exchange rates for the above currencies will have the same but opposite effect for both equity and profit for the year. The differences between the 2011 and 2010 values are solely due to differences in the nominal amounts in the individual currencies.

1000 Vestas annual report 2011 · Consolidated accounts 38 Derivative financial instruments, risk and financial management (continued)

Currency hedging agreements relating to future transactions (cash flow hedges) The following net outstanding forward exchange contracts of the Group at 31 December, which are publicly traded, are used and qualify as cash flows hedges:

2011 2010 Accumulated Accumulated capital capital gain/loss gain/loss recognised recognised Nominal in the statement Fair value Term to Nominal in the statement Fair value Term to principal of comprehen- of principal maturity principal of comprehen- of principal maturity mEUR amount1) sive income amount (months), up to amount1) sive income amount (months), up to USD 41 (8) 49 8 465 5 460 19 SEK (531) 18 (549) 24 (232) 0 (232) 24 CAD 508 0 508 10 254 (8) 262 18 GBP 196 3 193 40 (88) 0 (88) 14 AUD (23) 9 (32) 6 (157) (5) (152) 23 PLN (253) (4) (249) 12 (41) (2) (39) 10 BRL 32 0 32 5 59 (1) 60 8 DKK (75) 4 (79) 22 (42) 0 (42) 12 BGN (6) 0 (6) 11 (39) 0 (39) 56 RON (306) (4) (302) 12 (57) 0 (57) 25 TRY (55) (1) (54) 11 (24) 0 (24) 4 NZD 0 0 0 0 (1) 0 (1) 2 ARS 0 0 0 0 (6) 0 (6) 4 EUR 539 (62) 601 40 (91) 18 (109) 56 CZK (19) (1) (18) 9 0 0 0 0 NOK (49) 2 (51) 13 0 0 0 0 (1) (44) 43 0 7 (7)

1) Positive principal amounts of forward exchange contracts are sales of the currency in question, and negative principal amounts are purchases.

The Group's cash flow hedges relate primarily to net cash flows outside euro-based countries, primarily in American, Australian and Canadian dollars as well as Swedish kroner and Great British pound (USD, AUD, CAD, SEK and GBP, respectively) with equivalents in Danish kroner (DKK) and euro (EUR).

Currency hedging agreements relating to assets and liabilities recognised in the balance sheet (fair value hedges) The following net outstanding forward exchange contracts of the Group at 31 December are used and qualify as fair value hedging of assets and liabilities included in the balance sheet.

2011 2010 Accumulated Accumulated capital gain/loss capital gain/loss Nominal recognised Fair value Term to Nominal recognised Fair value Term to principal in the income of principal maturity principal in the income of principal maturity mEUR amount1) statement amount (months), up to amount1) statement amount (months), up to USD 197 0 197 12 29 (2) 31 5 AUD (25) 5 (30) 12 17 (1) 18 5 NOK (9) 0 (9) 10 (8) 0 (8) 12 CAD 6 4 2 5 0 0 0 - INR 0 0 0 0 12 0 12 3 EUR (153) (16) (137) 12 (50) 0 (50) 0 SEK 5 0 5 16 0 0 0 0 GBP (1) 0 (1) 9 0 0 0 0 PLN (20) 0 (20) 2 0 0 0 0 0 (7) 7 0 (3) 3

1) Positive principal amounts of forward exchange contracts are sales of the currency in question, and negative principal amounts are purchases.

Consolidated accounts · Vestas annual report 2011 1010 38 Derivative financial instruments, risk and financial management (continued)

Gains/(losses) on derivative financial instruments for the year used for hedging of fair values amounted to EUR 14m (2010: EUR (46)m).

Fair value adjustments caused by movements in the hedged risk on hedged instruments amounted to EUR 14m (2010: EUR (46)m).

The Vestas Group’s fair value hedges relate to receivables outside euro-based countries, primarily in American and Australian dollars (USD and AUD), with equivalents in euro (EUR).

All fair value changes are recognised in the income statement.

Commodity price risks Vestas continuously controls the overall commodity price risk in relation to sale and production of wind turbines. The majority of the commodity risk is managed by the sourcing organisation by means of contractual agreements with suppliers. Those commodities where the price risk management can be supported by financial derivatives both alternatives are taken into consideration to obtain the most effective hedging of the price risks. Financial derivatives are only traded with counterparts included in the Vestas banking group.

The fair value of the commodity hedges outstanding at the balance sheet date amounts to EUR 1m (2010: EUR 0m), which has been recognised in equity.

The isolated effects of a 10 per cent increase or decline in the price curve for the hedged commodities at 31 December are specified as follows:

2011 2010 10 per cent increase Equity 2 0 Profit for the year 0 0

10 per cent decline Equity (2) 0 Profit for the year 0 0

The above analysis is based on the outstanding financial hedge instruments at the balance sheet date.

The hedging of commodities are considered to be an effective cash flow hedge and changes in the value of these are recognised in the statement of comprehensive income. The sensitivity analyses are prepared on the assumption that all other factors are kept constant.

Interest rate risks The Group's interest rate risk relates to interest rate fluctuations that can affect the Group's cash flows related to interest payments and receipts. The basis for management of the interest rate risk is an ongoing evaluation of the risk versus interest expenses and taking decisions on what part of the funding should be fixed and what part should be variable.

Sensitivity analysis – interest rate risks Vestas estimates, based on the current market conditions, that a change in the interest rate of one percentage point either up or down is considered likely. An increase or decline of 1 percentage point in the level of interest rates, in relation to swaps financial derivatives outstanding at the balance sheet day, will have the following effect on equity and the income statement.

mEUR 2011 2010 1 percentage point increase Equity 0 (9) Profit for the year (3) (9)

1 percentage point decline Equity 0 9 Profit for the year 3 9

1020 Vestas annual report 2011 · Consolidated accounts 38 Derivative financial instruments, risk and financial management (continued)

The Group's interest-bearing financial assets and liabilities have the following term to contractual review or maturity, depending on which date occurs first. The differences in between 2011 and 2010 values are solely due to differences in the interest bearing assets and liabilities.

Time of review/maturity Effective 2011 Fixed-interest interest mEUR < 1year 1–5 years > 5 years Total part rate (%) Financial liabilities Mortgage debt 1 3 4 8 8 4.6 Bank debt and debt to credit institutions 5 309 0 314 0 3.7 Corporate bonds 0 598 0 598 598 4.8 6 910 4 920 606

Financial assets Trade receivables 663 0 0 663 663 0 0 663

Time of review/maturity Effe ctive 2010 Fixed-interest interest mEUR < 1year 1–5 years > 5 years Total part rate (%) Financial liabilities Mortgage debt 1 3 4 8 8 4.6 Bank debt and debt to credit institutions 3 306 0 309 0 3.7 Corporate bonds 0 597 0 597 597 4.8 4 906 4 914 605

Financial assets Trade receivables 624 0 0 624 624 0 0 624

The effective interest rates were calculated at the balance sheet date.

Financial management In connection with financial management it is the Group's objective to create the necessary stability to implement strategic development work while in the long term achieving a competitive return for the company's shareholders. At the same time, the Group has the objective of reducing cost of capital.

The Group's possible methods of maintaining or changing its capital structure are: adjustment of the dividends level; share buy-backs; issuing of new shares; new borrowing, change of the level of funding from prepayments received and credit granted by suppliers or the sale of assets to reduce debts.

The Group assesses its financial position on the basis of net interest-bearing debt/EBITDA calculated in accordance with the guidelines issued by the Danish Society of Financial Analysts. Vestas' ambition is to have a net interest-bearing debt/EBITDA which does not exceed 2:1, as at the last day of each financial year.

Consolidated accounts · Vestas annual report 2011 1030 39 Subsequent events

Preliminary financial highlights Change in the Executive Management of Vestas On 3 January 2012, Vestas disclosed, based on preliminary accounting The Board of Directors of Vestas Wind Systems A/S has received a thorough figures, that it expected an order intake of 7.4 GW for 2011, revenue of briefing on the conditions which during the last months have led to profit approx EUR 6bn, an EBIT margin of approx 0 per cent and a positive free warnings. As a consequence of this, CFO and Deputy CEO, Henrik Nørremark cash flow, ref. company announcement No. 1/2012. resigns, ref. company announcement No. 6/2012.

Organisational changes Election of members to the Board of Directors of Vestas Wind Systems A/S On 12 January 2012, Vestas disclosed a new organisational structure aimed At Vestas Wind Systems A/S’ board meeting discussing the annual report at increasing customer focus and earnings and reducing costs by more than for 2011, the chairmanship, Bent Erik Carlsen and Torsten Erik Rasmussen, EUR 150m by the end of 2012, ref. company announcement No. 3/2012. informed the Board that they will not stand for re-election for the Board of Directors at the Annual General Meeting on 29 March 2012. Orders In 2012, Vestas has announced two orders for Finland and China, respec- Furthermore, board member, Freddy Frandsen, informed the Board that he tively, with a total capacity of 79 MW. will not stand for re-election. A complete overview of announced orders is available at Vestas’ website. Vestas only announces firm and unconditional orders and in relation to com- The remaining board members elected by the annual general meeting have pany announcements, the order value must exceed EUR 66m. all informed the Board that they will stand for re-election, ref. company announcement No. 7/2012. Major shareholder announcement In February 2012, Vestas received information from Capital Research and Management Company, USA, that they had reduced their holding of Vestas shares to 10,143,805 shares (4.98 per cent) ref. company announcement No. 5/2012.

40 New accounting regulations

The IASB issued the following standards and amendments which have not IFRS 13 Fair value measurement yet been approved by the EU: The standard is effective for annual periods beginning on or after 1 January 2013. The standard sets out in a single IFRS a framework for measuring fair IAS 12 (Amended 2010) ”Income Taxes” value and required disclosures about fair value measurement. The amendment will be effective for financial years starting on or after January 1, 2012. The change means that investment properties, measured Amendments to IAS 1 Presentation of Items of Other at fair value according to IAS 40, only is considered to be recovered through Comprehensive Income sale. The Group will apply IAS 12 (Amended 2010) from 1 January 2012. The amendments aim is to improve consistency and clarity of the presenta- The change has no impact on Vestas’ financial statements as Vestas does tion of items of other comprehensive income statement properties. not hold investment properties. IAS 19 Employee Benefits Amendment to IFRS 7 ”Financial instruments, disclosures” The standard is effective for annual periods beginning on or after 1 January The amendment implies changed disclosure requirements with respect to 2013. The revised standard prescribes the accounting and disclosure for derecognition of financial instruments. The implementation is not expected employee benefits allowing users to make better assessment on the charac- to have any material impact. teristics of a company’s defined benefit plans, the amounts recognised in the financial statements, risks arising from defined benefit plans and participa- IFRS 9 ”Financial Instruments: Classification and Measurement” tion in multi-employer plans. The number of categories of fixed asset investments is reduced to two – amortised cost category or the fair value model. The classification is made on IAS 27 Separate Financial Statements the basis of the nature of the business model and the characteristics of the The standard is effective for annual periods beginning on or after 1 January instrument, respectively. The implementation of the standard is not expected 2013. The standard prescribes the accounting and disclosure requirements to have any material effect on the recognition of the fixed asset investments for investments in subsidiaries, joint ventures and associates when an entity of Vestas. prepares separate financial statements. Together with IFRS 10 Consolidated Financial statements supersedes IAS 27 Consolidated and Separate Finan- IFRS 10 Consolidated Financial Statements cial Statements. The standard is effective for annual periods beginning on or after 1 January 2013. The standard supersedes IAS 27 Consolidated and Separate Finan- IAS 28 Investments in Associates and Joint Ventures cial Statements and establishes principles for the presentation and prepa- The standard is effective for annual periods beginning on or after 1 January ration of consolidated financial statements when an entity controls one or 2013. The standard prescribes the accounting for investments in associates more other entities. and sets out the requirements for the application of equity method when accounting for investments in associates and joint ventures. IFRS 11 Joint Ventures/Joint arrangements The standard is effective for annual periods beginning on or after 1 January IFRIC 20 Stripping costs in the production phase of a surface mine 2013. The standard supersedes IAS 31 Interest in Joint Ventures and estab- The interpretation relates to the accounting treatment of operating mine lishes the principles for financial reporting by parties to a joint arrangement. costs. At present the standard is not expected to have any material impact on Vestas.

IFRS 12 Disclosures of Interests in Other Entities The standard is effective for annual periods beginning on or after 1 January 2013. The standard applies to entities that have an interest in a subsidiary, a joint arrangement, as associate or an unconsolidated structured entity.

1040 Vestas annual report 2011 · Consolidated accounts Legal entities1)

Votes and Name Place of registered office Share capital ownership

Parent company Vestas Wind Systems A/S Aarhus, Denmark tDKK 203,704 -

Production units Vestas Blades A/S Aarhus, Denmark tDKK 91,000 100% Vestas Blades Deutschland GmbH Lauchhammer, Germany tEUR 26 100% Vestas Blades Italia S.r.l. Taranto, Italy tEUR 21,364 100% Vestas Wind Technology (China) Co. Ltd. Tianjin, China tCNY 945,516 100% Vestas Blades America Inc. Windsor (CO), USA tUSD 12,000 100% Vestas Blades Spain S.L.U. Daimiel ,Spain tEUR 25,500 100%

Vestas Control Systems A/S Aarhus, Denmark tDKK 12,000 100% Vestas Control Systems Spain S.L.U. Olvega, Spain tEUR 384 100%

Vestas Nacelles A/S Aarhus, Denmark tDKK 300,000 100% Vestas Nacelles Italia S.r.l. Taranto, Italy tEUR 8,423 100% Vestas Nacelles Deutschland GmbH Lübeck, Germany tEUR 25 100% Vestas Nacelles Spain S.A. Viveiro, Spain tEUR 601 100% Vestas Nacelles Estonia, OÜ Tallinn, Estonia tEUR 100 100% Vestas Nacelles America Inc. Windsor (CO), USA tUSD 20,000 100% Vestas Castings Magdeburg GmbH Magdeburg, Germany tEUR 260 100% Vestas Castings Guldsmedshyttan AB Guldsmedshyttan, Sweden tSEK 11,000 100% Vestas Castings Kristiansand AS Kristiansand, Norway tNOK 62,797 100% Vestas Castings (Xuzhou) Co. Ltd. Xuzhou, China tCNY 172,119 100%

Vestas Towers A/S Aarhus, Denmark tDKK 55,000 100% Vestas Towers America Inc. Windsor (CO), USA tUSD 20,000 100% Vestas Towers Mediterranean S.L. Madrid, Spain tEUR 2,060 100%

1) Companies of immaterial significance have been left out of the overview.

Consolidated accounts · Vestas annual report 2011 1050 Legal entities (continued)

Votes and Name Place of registered office Share capital ownership

Sales and service units Vestas Americas A/S Aarhus, Denmark tDKK 3,550,000 100% Vestas America Holding, Inc. Portland (OR), USA tUSD 1,200,000 100% Vestas - American Wind Technology Inc. Portland (OR), USA tUSD 105,856 100% Vestas - Canadian Wind Technology Inc. Kincardine (ON), Canada tCAD 92,010 100%

Vestas Asia PacificA /S Aarhus, Denmark tDKK 33,000 100% Vestas Asia Pacific Wind Technology Pte. Ltd. Singapore, Singapore tSGD 10,000 100% Vestas - Australian Wind Technology Pty. Ltd. Melbourne, Australia tAUD 53,000 100% Vestas Korea Wind Technology Ltd. Seoul, South Korea tKRW 500,000 100% Vestas New Zealand Wind Technology Ltd. Wellington, New Zealand tNZD 100 100% Vestas Taiwan Ltd. Tapei City, Taiwan tTWD 500 100% Vestas Wind Technology (Beijing) Co. Ltd. Beijing, China tCNY 8,171 100% Vestas - Danish Wind Technology A/S Aarhus, Denmark tDKK 30,000 100% Vestas Wind Technology India Pvt Limited Chennai, India tINR 1,490,150 100% Vestas Wind Technology Japan Co. Ltd. Tokyo, Japan tJPY 110,000 100%

Vestas Central Europe A/S Aarhus, Denmark tDKK 307,000 100% Vestas Deutschland GmbH Husum, Germany tEUR 16,873 100% Vestas Services GmbH Husum, Germany tEUR 25 100% Vestas Benelux B.V. Rheden, The Netherlands tEUR 1,362 100% Vestas Österreich GmbH Schwechat, Austria tEUR 7,035 100% Vestas Czechia s.r.o. Prague, Czech Republic tCZK 200 100% Vestas Hungary Kft. Budapest, Hungary tHUF 500 100% Vestas Bulgaria EOOD Sofia, Bulgaria tBGN 5 100% Vestas CEU Romania S.R.L Bucharest, Romania tRON 570 100% Vestas Central Europe-Zagreb d.o.o Zagreb, Croatia tHRK 20 100% Vestas Slovakia spol S.r.o. Bratislava, Slovakia tEUR 5 100% LCC Vestas RUS Moscow, Russia tRUB 4,333 100% Vestas Eastern Africa Ltd. Nairobi, Kenya tKHS 100 100% Vestas Southern Africa Pty. Ltd. Sunninghill, South Africa tZAR 1 100% Vestas Ukraine LLC Kiev, Ukraine tUAH 1,598 100%

Vestas Mediterranean A/S Aarhus, Denmark tDKK 50,000 100% Vestas Italia S.r.l. Rome, Italy tEUR 3,000 100% Vestas Hellas Wind Technology S.A. Athens, Greece tEUR 6,808 100% Vestas Eólica SAU Madrid, Spain tEUR 12,680 100% Vestas France SAS Montpellier, France tEUR 5,040 100% Vestas (Portugal) - Serviços de Tecnología Eólica Lda. Lisbon, Portugal tEUR 6,000 100% Vestas WTG Mexico S.A. de C.V. Mexico City, Mexico tMXN 454 100% Vestas Mexicana del Viento S.A. de C.V. Mexico City, Mexico tMXN 61 100% Vestas do Brasil Ltda. Sao Paolo, Brazil tBRL 2,538 100% Vestas Argentina S.A. Buenos Aires, Argentina tARS 66 100% Vestas Chile Turbinas Eólica Limitade Santiago, Chile tCLP 5,080 100% Vestas Rüzgar Enerjisi Sistemleri Sanayi ve Ticaret Ltd. Sirketi Istanbul, Turkey tTRY 11,500 100% Vestas Turbinas Eólicas del Uruguay S.A. Montevideo, Uruguay tURU 720 100% Vestas MED (Cyprus) Ltd. Nicosia, Cyprus tEUR 300 100% Vestas Nicaragua SA Managua, Nicaragua tNIO 50 100% Vestas CV Limitada Cidade de Praia, tCVE 200 100% The Republic of Cape Verde Vestas Wind Systems Dominican Republic S.R.L. Santo Domingo, tDOP 100 100% The Dominican Republic

1060 Vestas annual report 2011 · Consolidated accounts Legal entities (continued)

Votes and Name Place of registered office Share capital ownership

Sales and service units (continued) Vestas Northern Europe A/S Aarhus, Denmark tDKK 100,000 100% Vestas - Celtic Wind Technology Ltd. Warrington, England tGBP 8,200 100% Vestas Northern Europe AB Malmö, Sweden tSEK 1,000 100% Vestas Poland Sp.z.o.o. Szczecin, Poland tPLN 435 100% Vestas Ireland Ltd. Dublin, Ireland tEUR 2,000 100% Vestas Norway AS Oslo, Norway tNOK 1,100 100% Vestas Finland Oy Helsinki, Finland tEUR 3 100%

Vestas Offshore A/S Aarhus, Denmark tDKK 97,000 100% Vestas Offshore The Netherlands B.V. Ijmuiden, The Netherlands tEUR 18 100% Vestas Offshore UK Ltd. Warrington, England tGBP 11,500 100% Vestas Offshore Bligh Bank. Brussels, Belgium tEUR 61 100% Vestas Offshore Sweden AB Malmö, Sweden tSEK 100 100% Vestas Offshore Germany GmbH Hamburg, Germany tEUR 1,275 100%

Other subsidiaries and associates Vestas Spare Parts & Repair A/S Aarhus, Denmark tDKK 50,000 100% Vestas Spare Parts Belgium N.V. Brussels, Belgium tEUR 500 100% Vestas Spare Parts & Repair UK, Ltd. Bristol, England tGBP 1,000 100% Vestas Spare Parts & Repair Spain, S.L. Barcelona, Spain tEUR 4,000 100% Vestas Spare Parts & Repair Germany GmbH Lübeck, Germany tEUR 25 100% Vestas Spare Parts & Repair America, Inc. Windsor (CO), USA tUSD 1000 100% Vestas Wind Systems (China) Co. Ltd. Hohhot, China tCNY 321,799 100% Vestas Schwitzerland AG Zürich, Schwitzerland tCHF 100 100% Vestas Services Philippines, Inc. Makai City, Philippines tPHP 9,336 100% Vestas India Holding A/S Aarhus, Denmark tDKK 267,110 100% Wind Power Invest A/S Aarhus, Denmark tDKK 25,000 100% Vestas Technology (UK) Limited Isle of Wight, England tGBP 90 100% Vestas Technology R&D Singapore Pte. Ltd. Singapore, Singapore tSGD 3,805 100% Vestas Technology R&D Chennai Pte. Ltd. Chennai, India tINR 40,000 100% Vestas Technology R&D Americas Inc. Houston (TX), USA tUSD 1,000 100% Vestas Technology R&D (Beijing) Co., Ltd. Beijing, China tCNY 6,729 100% Vestas Wind Technology (Jiangsu) Co. Ltd. Jiangsu, China tCNY 11,871 100% OCAS AS Oslo, Norway tNOK 100 100% Vestas Shared Service A/S Aarhus, Denmark tDKK 50 100% Vestas Shared Service (Deutschland) GmbH Hamburg, Germany tEUR 25 100% Vestas Shared Service (Spain), S.L.U. Madrid, Spain tEUR 3 100% Vestas Shared Service America, Inc. Portland (OR), USA tUSD 2,000 100% Vestas Middle East A/S Aarhus, Denmark tDKK 12,000 100% GREP Svenska AB Falkenberg, Sweden tSEK 1,824 100% GREP USA Inc. California, USA tUSD 2,001 100% GREP Wind Power Inc. California, USA tUSD 1,100 100% GREP California Aquisitions, Inc. California, USA tUSD 2,006 100% Pecsa, Plantas Eólicas De Canarias Sociedad Anónima Las Palmas, Spain tEUR 1,496 49.8% 2) Planta Eólica Europea S.A. Tarifa, Spain tEUR 1,199 43.9% 2)

2) Associates (wind power plants).

Consolidated accounts · Vestas annual report 2011 1070 Management's statement

The Executive Management and Board of Directors have today consid- In our opinion, the consolidated financial statements and the financial ered and adopted the annual report of Vestas Wind Systems A/S for statements give a true and fair view of the financial position at 31 the financial year 2011. December 2011 of the Group and the company and of the results of the Group and company's operations and consolidated cash flows for The consolidated financial statements are prepared in accordance the financial year 1 January– 31 December 2011. with International Financial Reporting Standards as adopted by the EU, and the financial statements of Vestas Wind Systems A/S, are In our opinion, the management report includes a true and fair account prepared in accordance with the Danish Financial Statements Act. of the development in the operations and financial circumstances of the Moreover, the consolidated financial statements and the financial Group and the company, of the results for the year and of the financial statements are prepared in accordance with additional Danish dis- position of the Group and the company as well as a description of the closure requirements for listed companies. The management report is most significant risks and elements of uncertainty facing the Group and also prepared in accordance with Danish disclosure requirements for the company. listed companies. We recommend that the annual report be approved at the Annual General Meeting.

Aarhus, 8 February 2012

Executive Management

Ditlev Engel Henrik Nørremark President and CEO Deputy CEO, Chief Operating Officer (COO) and acting Chief Financial Officer (CFO)

Board of Directors

Bent Erik Carlsen Torsten Erik Rasmussen Chairman Deputy Chairman

Carsten Bjerg Elly Smedegaard Rex Freddy Frandsen Håkan Eriksson

Jørgen Huno Rasmussen Jørn Ankær Thomsen Kim Hvid Thomsen Kurt Anker Nielsen

Michael Abildgaard Lisbjerg Sussie Dvinge Agerbo

1080 Vestas annual report 2011 · Consolidated accounts The independent auditor's report

To the Shareholders of Vestas Wind Systems A/S An audit involves performing procedures to obtain audit evidence Report on Consolidated Financial Statements and Parent Company about the amounts and disclosures in the Consolidated Financial Financial Statements Statements and the Parent Company Financial Statements. The We have audited the Consolidated Financial Statements and the procedures selected depend on the auditor’s judgment, including the Parent Company Financial Statements of Vestas Wind Systems assessment of the risks of material misstatement of the Consolidated A/S for the financial year 1 January to 31 December 2011, which Financial Statements and the Parent Company Financial Statements, comprise income statement, balance sheet, statement of changes in whether due to fraud or error. In making those risk assessments, the equity and notes, including summary of significant accounting poli- auditor considers internal control relevant to the Company’s prepa- cies, for both the Group and the Parent Company, as well as statement ration of Consolidated Financial Statements and Parent Company of comprehensive income and cash flow statement for the Group. The Financial Statements that give a true and fair view in order to design Consolidated Financial Statements are prepared in accordance with audit procedures that are appropriate in the circumstances, but not International Financial Reporting Standards as adopted by the EU, for the purpose of expressing an opinion on the effectiveness of the and the Parent Company Financial Statements are prepared under the Company’s internal control. An audit also includes evaluating the Danish Financial Statements Act. Moreover, the Consolidated Finan- appropriateness of accounting policies used and the reasonableness cial Statements and the Parent Company Financial Statements are of accounting estimates made by Management, as well as evaluating prepared in accordance with Danish disclosure requirements for listed the overall presentation of the Consolidated Financial Statements and companies. the Parent Company Financial Statements.

Management’s Responsibility for the Consolidated Financial We believe that the audit evidence we have obtained is sufficient and Statements and the Parent Company Financial Statements appropriate to provide a basis for our audit opinion. Management is responsible for the preparation of Consolidated Financial Statements that give a true and fair view in accordance The audit has not resulted in any qualification. with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies and for Opinion preparing Parent Company Financial Statements that give a true and In our opinion, the Consolidated Financial Statements give a true and fair view in accordance with the Danish Financial Statements Act and fair view of the Group’s financial position at 31 December 2011 and Danish disclosure requirements for listed companies, and for such of the results of the Group’s operations and cash flows for the financial internal control as Management determines is necessary to enable the year 1 January to 31 December 2011 in accordance with International preparation of Consolidated Financial Statements and Parent Com- Financial Reporting Standards as adopted by the EU and Danish dis- pany Financial Statements that are free from material misstatement, closure requirements for listed companies. whether due to fraud or error. Moreover, in our opinion, the Parent Company Financial Statements The audit has not included ”Nonfinancial principal key figures for the give a true and fair view of the Parent Company’s financial position at Group”, ”Accounting Policy for nonfinancial principal key figures” and 31 December 2011 and of the results of the Parent Company’s opera- ”GRI Statement” on pages 7, 32 and 120; these are included in a sepa- tions and cash flows for the financial year 1 January – 31 December rate report on page 33. 2011 in accordance with the Danish Financial Statements Act and Danish disclosure requirements for listed companies. Auditor’s Responsibility Our responsibility is to express an opinion on the Consolidated Finan- Statement on Management’s Review cial Statements and the Parent Company Financial Statements based We have read Management’s Review in accordance with the Danish on our audit. We conducted our audit in accordance with International Financial Statements Act. We have not performed any procedures Standards on Auditing and additional requirements under Danish additional to the audit of the Consolidated Financial Statements and audit regulation. This requires that we comply with ethical require- the Parent Company Financial Statements. On this basis, in our opin- ments and plan and perform the audit to obtain reasonable assurance ion, the information provided in Management’s Review is consistent whether the Consolidated Financial Statements and the Parent Com- with the Consolidated Financial Statements and the Parent Company pany Financial Statements are free from material misstatement. Financial Statements.

Copenhagen, 8 February 2012

PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab

Lars Holtug Claus Lindholm Jacobsen State Authorised State Authorised Public Accountant Public Accountant

Consolidated accounts · Vestas annual report 2011 1090

Annual accounts for Vestas Wind Systems A/S

112 Accounting policies 113 Income statement 114 Balance sheet 115 Statement of changes in equity 116 Notes to the annual accounts Annual accounts for Vestas Wind Systems A/S

Accounting policies for Vestas Wind Systems A/S The item ”Investments in subsidiaries” in the balance sheet include The annual accounts have been prepared in accordance with the pro the proportionate ownership share of the net asset value of the enter- visions of the Danish Financial Statements Act (DK GAAP) applying to prises calculated under the accounting policies of the parent company enterprises of reporting class D, as well as the requirements laid down with deduction or addition of unrealised intercompany profits or by NASDAQ OMX Copenhagen in respect of the financial reporting of losses and with addition of any remaining value of positive differences companies listed on the stock exchange. (goodwill).

Vestas Wind Systems A/S' functional currency is Danish kroner (DKK), Subsidiaries with a negative net asset value are measured at EUR 0, but due to the international relations of the Group the annual accounts and any receivables from these are written down by the parent com are presented in euro (EUR). pany's share of the negative net asset value. Any legal or constructive obligation of the parent company to cover the negative balance of the For adopted accounting policies see note 1 to the consolidated ac- company is recognised in provisions. counts on page 61. The denomination of the items in the parent company's annual accounts complies with the requirements of the The total net revaluation of investments in subsidiaries is transferred DK GAAP but conforms to the contents of the accounting policies ac- upon distribution of profit to ”Reserve under the equity method” under cording to IFRS. Refer to the section ”Terminology” for a description of equity. the main differences between DK GAAP and IFRS in the denomination of the items. Gains and losses on disposals or winding up of subsidiaries are cal culated as the difference between the sales value or cost of winding The accounting policies applied are unchanged from those applied in up and the carrying amount of the net assets at the date of acquisition the previous year. including goodwill and expected cost of disposal or winding up. The gains or losses are included in the income statement. The accounting policies of the parent company deviate from the Group's accounting policies in the following areas: Goodwill Goodwill is included in the item ”Goodwill” or in the item ”Investments Investments in subsidiaries in subsidiaries” and is amortised over the estimated useful life deter- Investments in subsidiaries are recognised and measured in the an- mined on the basis of Management's experience with the individual nual report of the parent company under the equity method. business areas. Goodwill is amortised on a straight-line basis over the amortisation period, which is maximum 20 years, and which will be On acquisition of subsidiaries, the difference between cost of acquisi- longest for enterprises acquired for strategic purposes with a long- tion and net asset value of the enterprise acquired is determined at term earnings profile. the date of acquisition after the individual assets and liabilities having been adjusted to fair value (the acquisition method) and allowing for the recognition of any restructuring provisions relating to the enterprise acquired.

Any remaining positive differences in connection with the acquisition of subsidiaries are included in the item ”Investments in subsidiaries”. The item ”Share of profit in subsidiaries after tax” in the income statement includes the proportionate share of the profit after tax less goodwill amortisation.

Terminology

Net revenue (DK GAAP): Revenue (IFRS)

Fixed assets (DK GAAP): Non-current assets (IFRS)

Provisions (DK GAAP): Non-current and current liabilities (IFRS)

Long-term debt (DK GAAP): Non-current liabilities (IFRS)

Short-term debt (DK GAAP): Current liabilities (IFRS)

1120 Vestas annual report 2011 · Annual accounts for Vestas Wind Systems A/S Income statement 1 January – 31 December for Vestas Wind Systems A/S mEUR Note 2011 2010 Net revenue 1 421 522 Cost of sales 2 (452) (394) Gross profit (31) 128

Administrative expenses 2, 3 (529) (392) Operating profit before special items (560) (264)

Special items 4 (6) (44) Operating profit (566) (308)

Share of profit in subsidiaries after tax 5 171 304 Financial income and expenses (net) 6 10 4 94 Profit before tax (291) 90

Corporation tax 7 109 50 Profit for the year (182) 140

Proposed distribution of profit: Reserve for net revaluation under the equity method 36 304 Retained earnings (218) (164) Dividends 0 0 Profit for the year (182) 140

Annual accounts for Vestas Wind Systems A/S · Vestas annual report 2011 1130 Balance at 31 December for Vestas Wind Systems A/S – Assets, equity and liabilities mEUR Note 2011 2010 Intangible assets 8 933 725 Property, plant and equipment 9 394 364 Investments in subsidiaries 10 1,842 1,279 Total fixed assets 3,169 2,368

Inventories 11 3 1

Receivables from subsidiaries 2,686 3,177 Other receivables 55 43 Corporation tax 9 6 Prepayments and accrued income 12 6 6 Deferred tax 13 139 0 Total receivables 2,895 3,232

Cash at bank and in hand 158 123

Total current assets 3,056 3,356

Total assets 6,225 5,724

Share capital 27 27 Reserve for net revaluation under the equity method 72 17 Retained earnings 2,347 2,597 Total equity 2,446 2,641

Warranty provisions 14 255 276 Deferred tax 13 0 16 Other provisions 15 4 4 Total provisions 259 296

Mortgage debt 16 7 7 Debt to credit institutions 16 895 902 Total long-term debt 902 909

Short-term share of mortgage debt and debt to credit institutions 16 0 0 Trade payables 93 98 Payables to subsidiaries 2,424 1,705 Other liabilities 101 75 Total short-term debt 2,618 1,878

Total debt 3,520 2,787

Total equity and liabilities 6,225 5,724

Mortgages and security 17 Contractual obligations 18 Contingent liabilities 19 Related party transactions 20 Currency and interest rate risks and the use of derivative financial instruments 21 Subsequent events 22

1140 Vestas annual report 2011 · Annual accounts for Vestas Wind Systems A/S Statement of changes in equity 1 January – 31 December for Vestas Wind Systems A/S

Reserve 2011 under the Retained mEUR Share capital equity method earnings Total Equity at 1 January 27 17 2,597 2,641

Exchange rate adjustments from conversion to EUR 0 0 6 6 Exchange rate adjustments relating to foreign entities 0 18 0 18 Reversal of fair value adjustments of derivative financial instruments, recognised in the income statement 0 (26) 16 (10) Fair value adjustments of derivative financial instruments 0 26 (50) (24) Changes in equity 0 1 (2) (1) Share-based payments 0 0 7 7 Tax on changes in equity 0 0 8 8 Profit for the year 0 36 (218) (182) Acquisition of treasury shares 0 0 (17) (17) Transferred from retained earnings 0 0 0 0 Equity at 31 December 27 72 2,347 2,446

Reserve 2010 under the Retained mEUR Share capital equity method earnings Total Equity at 1 January 27 0 2,417 2,444

Exchange rate adjustments from conversion to EUR 0 0 (3) (3) Exchange rate adjustments relating to foreign entities 0 42 0 42 Reversal of fair value adjustments of derivative financial instruments, recognised in the income statement 0 0 8 8 Fair value adjustments of derivative financial instruments 0 26 (16) 10 Share-based payments 0 0 6 6 Tax on changes in equity 0 (7) 1 (6) Profit for the year 0 304 (164) 140 Acquisition of treasury shares 0 0 0 0 Transferred from retained earnings 0 (348) 348 0 Equity at 31 December 27 17 2,597 2,641

Annual accounts for Vestas Wind Systems A/S · Vestas annual report 2011 1150 Notes to the annual accounts for Vestas Wind Saystems A/S

1 Net revenue

The net revenue in the parent company consists of management fee, service, royalty and rental income from other Group companies.

2 Staff costs

mEUR 2011 2010 Staff costs are specified as follows: Wages and salaries, etc. 194 208 Pension schemes 13 14 Other social security costs 1 1 208 223

For information regarding remuneration to the Board of Directors and to the Executive Management for the parent company see note 6 to the consolidated accounts. Pension schemes in the parent company consist solely of defined contribution plans and the company does therefore not carry the actuarial risk or the investment risk. For option programme, see note 32 to the consolidated accounts.

Average number of employees 2,352 2,611

3 Fees to auditors appointed by the Annual General Meeting

mEUR 2011 2010 Audit: PricewaterhouseCoopers 1 1 Total audit 1 1

Non-audit services:

PricewaterhouseCoopers Assurance engagements 0 - Tax assistance 0 0 Other services 1 1 Total non-audit services 1 1

Total 2 2

In 2010 and 2011, other services include fees mainly for other assistance in accounting.

1160 Vestas annual report 2011 · Annual accounts for Vestas Wind Systems A/S 4 Special items

Special items comprise write down of property, plant and equipment regarding closing of the plant in Varde.

5 Share of profit in subsidiaries

mEUR 2011 2010 Share of profit in subsidiaries before tax 307 452 Share of tax of subsidiaries (122) (134) Amortisation of goodwill (14) (14) 171 304

6 Financial income and expenses

mEUR 2011 2010 Financial income from subsidiaries 200 172 Financial expenses to subsidiaries (12) (1) Exchange rate adjustments (40) (34) Other financial income 0 0 Other financial expenses (44) (43) 104 94

7 Corporation tax

mEUR 2011 2010 Current tax on profit for the year 3 5 Deferred tax on profit for the year (113) (54) Change to tax rate 0 0 Joint taxation contribution 0 0 Adjustments relating to previous years (net) 1 (1) Total corporation tax for the year (109) (50)

Tax on entries in equity relating to deferred tax (8) 6 Tax on entries in equity (8) 6

Total tax for the year (117) (44)

Annual accounts for Vestas Wind Systems A/S · Vestas annual report 2011 1170 8 Intangible assets

Completed Development 2011 development projects in mEUR projects Goodwill Software progress Total Cost at 1 January 418 19 127 458 1,022 Exchange rate adjustments 1 0 0 2 3 Additions 16 0 26 302 344 Disposals (4) 0 0 (6) (10) Transfers 499 0 0 (499) 0 Cost at 31 December 930 19 153 257 1,359

Amortisation at 1 January 249 7 41 0 297 Exchange rate adjustments 1 0 0 0 1 Amortisation for the year 103 1 24 0 128 Impairment for the year 0 0 0 0 0 Reversal of amortisation of disposals in the year 0 0 0 0 0 Amortisation at 31 December 353 8 65 0 426

Carrying amount at 31 December 577 11 88 257 933

Amortisation period 3–5 years 5–20 years 5 years

Included in software are IT projects in progress amounting to EUR 9m at 31 December 2011.

9 Property, plant and equipment

Other fixtures and fittings, Property, plant 2011 Land and Plant and tools and and equipment mEUR buildings machinery equipment in progress Total Cost at 1 January 337 23 54 77 491 Additions 6 1 18 57 82 Disposals (1) 0 (7) 0 (8) Transfers 74 5 33 (112) 0 Cost at 31 December 416 29 98 22 565

Depreciation at 1 January 96 8 23 0 127 Depreciation for the year 17 4 20 0 41 Write down for the year 6 0 0 0 6 Reversal of amortisation on disposals in the year 0 0 (3) 0 (3) Transfer 0 0 0 0 0 Depreciation at 31 December 119 12 40 0 171

Carrying amount at 31 December 297 17 58 22 394

Depreciation period 20–40 years 3–10 years 3–5 years

Write down of property, plant and equipment is related to the planned closure of the factory in Varde, Denmark.

1180 Vestas annual report 2011 · Annual accounts for Vestas Wind Systems A/S 10 Investments in subsidiaries

mEUR 2011 2010 Cost at 1 January 1,262 1,263 Exchange rate adjustments from conversion to EUR 2 (1) Additions 506 0 Disposals 0 0 Cost at 31 December 1,770 1,262

Value adjustments at 1 January 17 (348) Exchange rate adjustments 18 42 Profit shares for the year after tax 185 318 Changes in equity 1 19 Dividend (135) 0 Disposals 0 0 Amortisation of goodwill (14) (14) Value adjustments at 31 December 72 17

Carrying amount at 31 December 1,842 1,279

Remaining positive difference included in the above carrying amount at 31 December 166 180

The legal entities in the Vestas Group are listed on pages 105–107 in the consolidated accounts.

11 Inventories

mEUR 2011 2010 Raw materials and consumables 3 1 Work in progress 0 0 Finished goods 0 0 3 1

12 Prepayments and accrued income

Prepayments and accrued income comprise prepaid membership fees and rent.

13 Deferred tax

mEUR 2011 2010 Deferred tax at 1 January (16) (68) Deferred tax on profit for the year 113 54 Tax on entries in equity 8 (6) Change in corporate tax rate 0 0 Adjustment relating to previous years 34 4 Deferred tax at 31 December (net) 139 (16)

Annual accounts for Vestas Wind Systems A/S · Vestas annual report 2011 1190 14 Warranty provisions

mEUR 2011 2010 Warranty provisions at 1 January 276 328 Warranty provisions for the year 144 191 Used warranty provisions for the year (165) (243) Warranty provisions at 31 December 255 276

The warranty provisions are expected to be payable as follows: 0–1 year 140 166 1–5 years 115 110 255 276

The product warranties, which in the great majority of cases cover both component defects, functional errors and any financial losses suffered by the customer in connection with unplanned suspension of operations, are usually granted for a two-year period from delivery of the wind turbine. In certain cases, a warranty of up to five years is granted. To the customer, the specific warranty period and the specific warranty terms are part of the basis of the individual contract.

Warranty provisions only include standard warranty, whereas services purchased in addition to the standard warranty are included in prepayments from customers. See note 2 to the consolidated accounts for further information on Vestas' warranty provisions.

In addition to the above, provisions are made for upgrades of wind turbines sold due to type faults, etc. where Vestas has a warranty obligation at the date of provision. Such provisions will also include wind turbines sold in prior years, but where type faults, etc. are identified later. Moreover, it should be emphasised that the complexity of some of the identified type faults, etc. may lead to adjustments of previous estimates, upwards as well as downwards, affected by factual information about population size, costs of repair and the timing of such repair.

15 Other provisions

mEUR 2011 2010 Other provisions at 1 January 4 6 Other provisions for the year 0 0 Used other provisions during the year 0 (2) Adjustment relating to previous years provisions 0 0 Other provisions at 31 December 4 4

Other provisions are expected to be payable as follows: 0–1 year 4 1 > 1 year 0 3 4 4

16 Long-term debt

mEUR 2011 2010 Short-term share of long-term debt breaks down as follows: Mortgage debt 0 0 Debt to credit institutions 0 0 0 0

Long-term debt breaks down as follows: 1–5 years 898 904 > 5 years 4 5 902 909

1200 Vestas annual report 2011 · Annual accounts for Vestas Wind Systems A/S 17 Mortgages and security

As security for the company's mortgage loans, mortgage deeds registered to the mortgagor and all-money mortgages have been secured on land and buildings, plant and machinery as well as other fixtures and fittings, tools and equipment.

Furthermore, the company has issued mortgage deeds registered to the mortgagor and all-money mortgages secured on the above-mentioned properties. These mortgage deeds and all-money mortgages are all in the possession of the company.

mEUR 2011 2010 Total mortgage loans 7 8

Mortgage deeds and all-money mortgages relating to the company's mortgage loans: Nominal value of mortgage deeds and all-money mortgages 10 10 Carrying amount of pledged assets 18 19

Other mortgage deeds and all-money mortgages in the possession of the company 104 104

Provided work and payment guarantees 345 293

18 Contractual obligations

mEUR 2011 2010 The lease obligation relating to operating leases falls due: 0–1 year 2 2 1–5 years 0 0 > 5 years - -

Operating leases comprise irrevocable operating leases regarding buildings and cars. The main obligations relate to buildings.

19 Contingent liabilities

mEUR 2011 2010 Guarantees for bank debt of subsidiaries 45 35

In addition to this, the parent company provides performance bonds in connection with project supplies in subsidiaries, and their warranty obligations to customers.

The company is of a joint taxation with its Danish subsidiaries. As the administrative company for the subsidiaries included in the joint taxation, the company is liable for the tax obligations of the included subsidiaries.

For pending lawsuits see note 37 to the consolidated accounts.

20 Related party transactions

For transactions with related parties see note 33 to the consolidated accounts.

21 Currency and interest rate risks and the use of derivative financial instruments

For the use of derivative financial instruments and risks and capital management see note 38 to the consolidated accounts.

22 Subsequent events

For subsequent events see note 39 to the consolidated accounts.

Annual accounts for Vestas Wind Systems A/S · Vestas annual report 2011 1210 GRI overview

GRI Indicator Subject Page Global Compact principles Strategy and profile 1.1 Management statement1) 4 1.2 Description of key impacts, risks and opportunities1) 7, 19 2.1–2.10 Organisational profile, structures, markets1) 6, 16, 18, 22, 24, 36, 53, 105, 123 3.1–3.13 Report parameters 2, 6, 32, 33, 109 4.1–4.10 Corporate governance1) 35 1–10 4.11–4.13 Commitments1) 18 1–10 4.14–4.17 Stakeholder engagement1) 18, 19, 22, 32

Economic performance indicators Management approach 18, 29 EC1 Direct economic value generated and distributed1) 53 EC3 Coverage of benefit plan obligations 85 EC4 Significant financial assistance received from government 79, 94

Environmental performance indicators Management approach1) 25 7–9 EN1 Materials used 7 8 EN3, EN4, EN6 Energy1) 7, 26 8, 9 EN8 Water1) 7, 26 8 EN16 Emissions1) 7, 25 8 EN21 Waste water1) - 8 EN22, EN23 Waste1) 7, 26 8 EN26 Products and services1) 7, 25 9 EN28 Compliance1) - 8

Social performance indicators Labour practices and labour quality Management approach1) 21 1, 3, 6 LA1, LA2 Employment1) 21 6 LA7 Occupational health and safety1) 9, 21 1 LA10, LA12 Training and education1) - LA13 Composition of governance bodies1) 21 1, 6

Human rights Management approach1) 22 1–6 HR2 Screening of suppliers1) 27 1–6 HR5 Freedom of association, collective bargaining1) 22 1–3 HR6 Child labour1) 22 1, 2, 5 HR7 Forced labour, compulsory labour1) 22 1, 2, 4

Society Management approach1) 22, 29, 41 10 SO5 Public policy1) 29 SO7 Anti-competitive behaviour1) - SO8 Compliance1) -

Product responsibility Management approach1) 25 PR5 Customer satisfaction1) 19 PR9 Compliance1) -

1) Further information is available on vestas.com.

This index shows where to find information on the GRI G3.0 indicators, as well as the principles of the United Nations Global Compact, in this report. Further information and an extended overview is available at vestas.com.

1220 Vestas annual report 2011 · GRI overview Information about the company

Company reg. No. Lawyers 10 40 37 82 GORRISSEN FEDERSPIEL H. C. Andersens Boulevard 12 1553 Copenhagen V Company Denmark Vestas Wind Systems A/S Hedeager 44 Reed Smith LLP 8200 Aarhus N 101 Second Street, Suite 1800 Denmark San Francisco, CA 94105 USA Tel: +45 9730 0000 Fax: +45 9730 0001 [email protected] Auditor vestas.com PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab Strandvejen 44 Board of Directors 2900 Hellerup Bent Erik Carlsen, Chairman Denmark Torsten Erik Rasmussen, Deputy Chairman Carsten Bjerg Elly Smedegaard Rex Banks Freddy Frandsen Nordea Bank Danmark A/S Håkan Eriksson Strandgade 3 Jørgen Huno Rasmussen 0900 Copenhagen C Jørn Ankær Thomsen Denmark Kim Hvid Thomsen Kurt Anker Nielsen Commerzbank AG Michael Abildgaard Lisbjerg PO Box 52715 Sussie Dvinge Agerbo 30 Gresham Street London EC2D 2XY UK Executive Management Ditlev Engel, President and CEO Société Générale Henrik Nørremark, Deputy CEO, Chief Operating Officer (COO) 29, Boulevard Haussmann and acting Chief Financial Officer 75009 Paris Anders Vedel, Chief Turbines R&D Officer (CTO) and acting France Chief Solutions and Services Officer (CSSO) Juan Araluce, Chief Sales Officer (CSO) Banco Español de Crédito Paseo de la Castellana, 103 28046 Madrid Spain

Information about the company · Vestas annual report 2011 1230 Vestas Wind Systems A/S Hedeager 44 . 8200 Aarhus N . Denmark Tel: +45 9730 0000 . Fax: +45 9730 0001 [email protected] vestas.com

Disclaimer and cautionary statement This document contains forward-looking statements concerning Vestas’ financial condition, results of operations and business. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in these statements.

Forward-looking statements include, among other things, statements concerning Vestas’ potential exposure to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. A number of factors that affect Vestas’ future operations and could cause Vestas’ results to differ materially from those expressed in the forward-looking statements included in this document, including (without limitation): (a) changes in demand for Vestas’ products; (b) currency and interest rate fluctuations; (c) loss of market share and industry competition; (d) environmental and physical risks, including adverse weather conditions; (e) legislative, fiscal, and regulatory developments, including changes in tax or accounting policies; (f) economic and financial market conditions in various countries and regions; (g) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, and delays or advancements in the approval of projects; (h) ability to enforce patents; (i) product development risks; (j) cost of commodities; (k) customer credit risks; (l) supply of components; and (m) customer-created delays affecting product installation, grid connections and other revenue-recognition factors.

All forward-looking statements contained in this document are expressly qualified by the cautionary statements contained or referenced to in this statement. Undue reliance should not be placed on forward-looking statements. Each forward-looking statement speaks only as of the date of this document. Vestas does not undertake any obligation to publicly update or revise any forward-looking statement as a result of new information or future events others than as required by Danish law. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this document.

©Vestas 2012 This document was created by Vestas Wind Systems A/S and contains copyrighted material, trademarks and other proprietary information. All rights reserved. No part of the document may be reproduced or copied in any form or by any means such as graphic, electronic or mechanical, including photocopying, taping or information storage and retrieval systems, without the prior written permission of Vestas Wind Systems A/S. All specifications are for information only and are subject to change without notice. Vestas does not make any representations or extend any warranties, expressed or implied, as to the adequacy or accuracy of this information.